HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
There are three issues that were
addressed during the hearing of this appeal:
whether the Appellant ceased to be
a resident of Canada and became a resident of the United States
in April 2000;
(b) whether certain expenses related to the Appellant’s
accommodation in the San Francisco area were deductible in computing his income in 2000;
whether the Appellant is entitled
to a deduction in computing his income in 2000 for an amount that he claimed he
spent in relation to a potential casino project in an area near the Russia-China
Prior to 2000, the Appellant was
living with his spouse and his children in Toronto. He and his wife separated (and later divorced in
2003). For the first part of the year 2000 the Appellant was living in Niagara Falls,
Ontario and working in Amherst, New York. There
was also an apartment that was available to him in Amherst, New
York, where he could stay overnight if he had to be at an early morning meeting
the following day. He was working on a contract basis for a project for
Citigroup. This contract lasted for the first three months of 2000.
Following the completion of this
contract, the Appellant flew to Russia and then to Israel and then returned to North America.
Upon his return he tried to find work in the San Francisco area. He had two
interviews and following the second interview he had a job with eLUXURY.com in
April 2000. This job was in California, and eLUXURY.com supplied the accommodations for the
Appellant. He did not pay for these accommodations and he stayed in these
accommodations for the duration of the contract which lasted until August 2000.
On the termination of the contract he vacated the premises where he was staying.
While he was working for eLUXURY.com, eLUXURY.com paid the rental for the unit.
After the expiration of the contract eLUXURY.com would no longer pay for the
accommodation and the unit was too expensive for the Appellant to rent.
Following the termination of this
contract with eLUXURY.com, the Appellant worked briefly at another job and then
later found work with AudioBase. He stayed in hotels and other short-term
accommodation. In each case the places were furnished and he only rented the
apartments for short periods. The longest period of time that he stayed in any
one place in 2000 was in the apartment provided by eLUXURY.com.
Throughout the year 2000 the
Appellant was married but he and his wife were living separate and apart. The
Appellant has two children – one was born in 1986 and the other in 1996. His
children were living with his wife in the Toronto area. In addition to his wife and children, the
Appellant’s mother also lived with his wife and children in the same premises
in Toronto. The Appellant’s mother was from Russia, and he wanted to sponsor her
for immigration to Canada. When the Appellant filed his tax return in Canada
for 2000, he indicated that he was a resident of Canada (he listed his address
as the address where his mother, his wife and his children were living) and he
indicated the he was married (he did not indicate that he was separated).
When he was in California, he
would fly home every second weekend to visit with his mother and his children.
He was close to his mother and it was important to him that she was available
to look after his children.
With respect to the first issue
concerning whether the Appellant had ceased to be a resident of Canada in 2000,
it seems clear that the Appellant had significant residential ties to Canada. His
children were living with his mother and his wife in Canada. He was
supporting this household by sending money regularly. He maintained his OHIP
coverage. He maintained his Canadian credit cards. He flew every second weekend
to Toronto to visit his children and his mother. He did not move any personal
belongings to California. The accommodations at California were all of a very
short-term or temporary nature in 2000.
There is also another very
significant fact indicating that he did not cease to be a resident of Canada in 2000.
When the Appellant filed his tax return in Canada for 2000, he indicated that
he was a resident of Canada and listed the address of his mother, spouse and
children as his address. He stated that he filed his tax return in Canada as a
resident of Canada because he wanted to sponsor his mother’s immigration to Canada and he
was concerned that he might not be able to do so if he would not have been a
resident of Canada. His mother remained in Canada until late December
2000 or early January 2001 when she returned to Russia. Therefore the Appellant
would have maintained this intention until late December 2000 or early January
2001. His mother later returned to Canada in 2005 but passed away later in that year.
It appears from a review of the Immigration and Refugee Protection Act and the Immigration and Refugee
Protection Regulations that the
Appellant may have had a valid concern in relation to his right to sponsor his
mother. Sections 11, 12 and 13 of the Immigration and Refugee Protection Act
provide as follows:
11. (1) A foreign national must, before entering Canada,
apply to an officer for a visa or for any other document required by the
regulations. The visa or document shall be issued if, following an examination,
the officer is satisfied that the foreign national is not inadmissible and
meets the requirements of this Act.
The officer may not issue a visa or other document to a foreign national whose
sponsor does not meet the sponsorship requirements of this Act.
A foreign national may be selected as a member of the family class on the basis
of their relationship as the spouse, common-law partner, child, parent or other
prescribed family member of a Canadian citizen or permanent resident.
13. (1) A Canadian citizen or permanent resident may,
subject to the regulations, sponsor a foreign national who is a member of the
Section 130 of the Immigration
and Refugee Protection Regulations provides as follows:
130. (1) Subject to subsection (2), a sponsor, for the
purpose of sponsoring a foreign national who makes an application for a
permanent resident visa as a member of the family class or an application to
remain in Canada as a member of the spouse or common-law partner in Canada
class under subsection 13(1) of the Act, must be a Canadian citizen or permanent
at least 18 years of age;
resides in Canada; and
filed a sponsorship application in respect of a member of the family class or
the spouse or common-law partner in Canada class in accordance with section 10.
(2) A sponsor who is a Canadian citizen and does not
reside in Canada may sponsor an application referred to in subsection (1) by
their spouse, common-law partner, conjugal partner or dependent child who has
no dependent children if the sponsor will reside in Canada when the applicant
becomes a permanent resident.
The Appellant was a Canadian
citizen in 2000. Since the Appellant wanted to sponsor his mother, he would
have to reside in Canada. This clearly indicates an intention to remain as a
resident of Canada since it was important to the Appellant that his mother be
present in Canada to look after his children and he wanted to sponsor
her immigration to Canada. Therefore I find that the Appellant did not cease to
be a resident of Canada in 2000.
The Appellant was employed for
significant periods of time in the United
States in 2000 for significant
remuneration (approximately $195,000 from eLUXURY.com and AudioBase). He spent
more than one-half of the year 2000 in the United
States. He had various accommodations in
the United States in 2000. As a result, it appears that he was liable
for taxes in the U.S. in 2000 and that he was a resident of the U.S. for the
purposes of Article IV of the Canada-United States Income Tax Convention (the
“Convention”) in 2000. This Article provides, in part, as follows:
1. For the purposes of this
Convention, the term “resident of a Contracting State” means any person that,
under the laws of that State, is liable to tax therein by reason of that
person's domicile, residence, citizenship, place of management, place of
incorporation or any other criterion of a similar nature, but in the case of an
estate or trust, only to the extent that income derived by the estate or trust
is liable to tax in that State, either in its hands or in the hands of its
beneficiaries. For the purposes of this paragraph, an individual who is not a
resident of Canada under this paragraph and who is a United States citizen or
an alien admitted to the United States for permanent residence (a “green card”
holder) is a resident of the United States only if the individual has a
substantial presence, permanent home or habitual abode in the United States,
and that individual's personal and economic relations are closer to the United
States than to any third State.
2. Where by reason of the
provisions of paragraph 1 an individual is a resident of both Contracting States,
then his status shall be determined as follows:
(a) he shall be deemed to be a
resident of the Contracting State in which he has a permanent home available to
him; if he has a permanent home available to him in both States or in neither
State, he shall be deemed to be a resident of the Contracting State with which
his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in
which he has his centre of vital interests cannot be determined, he shall be
deemed to be a resident of the Contracting State in which he has an habitual
(c) if he has an habitual abode
in both States or in neither State, he shall be deemed to be a resident of the Contracting
State of which he is a citizen; and
(d) if he is a
citizen of both States or of neither of them, the competent authorities of the
Contracting States shall settle the question by mutual agreement.
Since the Appellant was a resident
of Canada and a resident of the United
States in 2000 for the purpose of
paragraph 1 of Article IV of the Convention, it is necessary to consider the
application of the tiebreaker rules. The tiebreaker rules are set out in
paragraph 2 of Article IV. The first tie-breaker rule is based on determining
the country or countries in which the Appellant has a permanent home available
to him. The Appellant stated that when he returned to Canada he would
either stay at the home where his spouse, children and his mother resided or he
would stay with friends. It would depend on the mood of his wife. The Appellant
stated that he did not have a key to this residence where his spouse, his
children and his mother were residing.
Since this home in Canada was a
permanent home, the issue for the purposes of the Convention is whether or not
the property was available to him. It does not seem plausible to me that this
home would not have been available to him if he would have chosen to stay
there. The Appellant was supporting the home and his mother, who was a former
Russian general, was staying at this home. It does not seem plausible that his
mother, as a former Russian general, would take orders from the Appellant’s
spouse (her daughter in law) if the Appellant’s spouse should attempt to deny
him entry to the home. The Appellant clearly stated that his mother would allow
him access. Therefore it is more likely than not that his mother would have allowed
the Appellant access to the property whenever he wanted even if his spouse would
have objected and therefore I find that this home was available to him. Whether
he chose to stay there or stay with friends was his choice. The issue for the purposes
of the Convention is whether the property was available to him. It was
available, and I find that he had a permanent home available to him in Canada
The issue then becomes whether he
had a permanent home available to him in the United States.
In Garcia v. The Queen  1 C.T.C. 2215, 2007 D.T.C. 1593 Justice
Lamarre stated that:
11 It is my opinion that
under the tie-breaker rule the appellant was resident in Canada since, during
his stay in Canada, he had a permanent home available to him here, while he had
none in the U.S.
12 In so deciding, I rely on
the commentary by the OECD (Organisation for Economic Co-operation and
Development) Committee on Fiscal Affairs on Article 4 (regarding the definition
of resident) of the Model Tax Convention on Income and on Capital, in Model
Tax Convention on Income and on Capital, condensed version, dated July 15,
2005, at page 80, paragraphs 11, 12 and 13 (see Respondent's Book of
Authorities Legislation, Tab B):
The Article gives preference to the Contracting State in which
the individual has a permanent home available to him. This criterion will
frequently be sufficient to solve the conflict, e.g. where the individual has a
permanent home in one Contracting State and has only made a stay of some length
in the other Contracting State.
Subparagraph a) means, therefore, that in the application
of the Convention (that is, where there is a conflict between the laws of the
two States) it is considered that the residence is that place where the
individual owns or possesses a home; this home must be permanent, that is
to say, the individual must have arranged and retained it for his permanent use
as opposed to staying at a particular place under such conditions that it is
evident that the stay is intended to be of short duration.
As regards the concept of home, it should be observed that any
form of home may be taken into account (house or apartment belonging to or
rented by the individual, rented furnished room). But the permanence of the
home is essential; this means that the individual has arranged to have the
dwelling available to him at all times continuously, and not occasionally for
the purpose of a stay which, owing to the reasons for it, is necessarily of
short duration (travel for pleasure, business travel, educational travel,
attending a course at school, etc.).1
14 To this I would
add the following academic support:
Treaties typically deem a dual resident individual to reside in
the country in which he or she has a permanent home. Permanence implies that
the individual must have arranged and retained the home for his or her
permanent, as opposed to temporary, use or stays of short duration. A
"home" includes any form of residential establishment, for example, a
house, apartment, or even rented furnished rooms. It is the permanence of the home,
rather than its size or nature of ownership or tenancy, that is the measure of
attachment to the country.2
I am not convinced that the
accommodations that the Appellant was occupying in the San Francisco
area in 2000 could be considered a permanent home available to him. The
places where he stayed in 2000 in the San
Francisco area are as follows:
From April until August 2000 he
stayed in the apartment provided by eLUXURY.com
From August 7th to
August 30th he stayed in Bay City Suites which he described in a
hand written note as “temp. lodging”
From September 9th to
September 13th he stayed at the Howard Johnson Hotel in Corte Madera, California
For the two weeks from September
14 to September 28 and for the one week from October 2 to October 9, he rented
a condo; and
He signed a lease for the rental
of a one bedroom furnished unit for the period from October 8, 2000 to March 7,
2001 (the agreement refers to March 7, 2000 but presumably meant March 7,
2001). After the expiration of this term, the rental was on a month to month
basis and could be terminated on two weeks notice.
The gaps in the above schedule
were presumably filled by other short term accommodations. There is no sense of
any permanence to these living arrangements. He stayed at various places to be
close to his work which, because his work was comprised of short term
contracts, meant that he had to relocate several times to look for new work or
to be near a new work location.
The only property which had any
permanence in 2000 in the United States was a piece of land that he purchased
in the Oakland area. However this was a piece of vacant land on
which he indicated that he intended to build a home. He spent a lot of time
cleaning up the particular parcel of land, but there was no indication that any
building was ever constructed on the land and he never resided at this property.
Since his intention was to sponsor
his mother for immigration, he would have intended to maintain his status as a
resident of Canada which undoubtedly influenced his decision with
respect to having a permanent home available to him in the United States.
He was not an American citizen and he did not have a green card. He only held
what he described as a North American trade visa that was valid for one year
(but could be renewed). He held a California driver’s licence but he indicated
that he only acquired this because he wanted to buy a car and he needed a California
driver’s licence to obtain insurance. He indicated that in 2001 he bought a
boat and then lived on the boat, but that was not until 2001.
I find that he did not have a
permanent home available to him in the United
States in 2000. As a result, under the
Convention, he was a resident of Canada in 2000 and the provisions of subsection 250(5) of
the Income Tax Act were not applicable to the Appellant in 2000.
The Appellant was allowed certain
business expenses for the 2000 taxation year and after filing his tax return
for 2000 he filed a T1 adjustment request. The only additional expenses for
which there was any evidence at the hearing were the amounts claimed in relation
to the accommodations in the United
States and the amounts related to the
proposed casino project near the Russia – China border.
The amounts that the Appellant
spent on his accommodations in 2000 in the United
States were personal living expenses.
The Appellant argued that he was carrying on a real estate development business
in the United States and that he was investigating properties for purchase that
were for sale either as a result of a foreclosure or because property taxes had
not been paid. However since he did not have any income from this business in
2000, the limitations in subsection 18(12) of the Income Tax Act would
have been applicable even if he would have had an office in his accommodations
in the United States. Given the number of different places where he stayed
in 2000, it does not seem plausible that he had an office in each and every one
of these places.
It also appears that his claim for
accommodation expense includes a claim for the period when eLUXURY.com was
paying for his accommodations.
The amounts paid for
accommodations in the United States would also not qualify as moving expenses since the
definition of moving expenses in subsection 62(3) of the Income Tax Act
only includes the cost of lodging near the new residence. These were not amounts
paid for lodging near the new residence but were amounts paid for the place
that he was occupying as his residence. As a result, these costs were not moving
As a result, no amount will be
deductible in computing the Appellant’s income for 2000 for the purposes of the
Income Tax Act in relation to the accommodation expenses incurred by the
Appellant and no amount will be deductible in relation to the accommodation
provided by eLUXURY.com.
The Appellant also claimed a
deduction for $70,000 US that the Appellant claimed was paid in relation to a
proposed Russian casino project. Counsel for the Respondent submitted that
there was no evidence that the amount had been spent. There was however the
oral testimony of the Appellant that this amount was spent and also a receipt
dated March 20, 2000 that appears to be signed by the Appellant and another
individual who is stated to be the authorized representative of a government
official and a Russian businessman. Only the Appellant testified during the
The receipt states that the
$70,000 US was paid in full and that the Appellant has sole ownership of the
Marketing Analysis and Casino Feasibility Study on Chita Oblast trade zone
between Russia and China.
The Appellant described this trade
zone as a border area between Russia and China in which persons traveling from either Russia or China have easy
access so that business deals can be arranged between the two countries. The
Appellant described this as an attractive area for a casino project. The
Appellant stated that as a result of his contacts he acquired the exclusive
rights to build and operate a casino in this area and that he had arranged for
a feasibility study for this project. The Appellant had also contacted the
casinos in Las Vegas to determine if there was any interest in developing
this project and he had received an expression of interest from Caesars Palace.
The Appellant stated that the
$70,000 US should be allocated between the exclusive rights to build this
casino and the feasibility study on the basis that $20,000 US was for the
exclusive rights and $50,000 US was for the feasibility study. In this
particular case, it does not matter whether the amount is allocated to the
feasibility study or to the amount spent for the exclusive right to build and
operate a casino in this area. The rights to the feasibility study will be in
the same category as the exclusive rights to develop the casino as these rights
were only acquired in relation to the casino project and were also acquired for
resale. The Appellant’s intention in acquiring the exclusive right to develop
the casino and the feasibility study was to sell these as quickly as possible.
It was not his intention to be involved in building or operating the casino.
Early in 2000, the Chinese
government changed its laws or announced that it would be changing its laws,
which meant that the casino project was no longer a viable project. As a result,
the value of the exclusive rights to build and operate the casino and any
interest in the feasibility study became nil.
The Appellant stated that there
was not a lot of documentation related to the acquisition of the exclusive
rights or the amount paid for such rights because that was the way that
business was conducted in Russia at that time.
In this case I find that it is
more likely than not that the Appellant acquired the exclusive rights to
develop the casino in this particular area. The Appellant's mother was a former
Russian general and therefore it certainly is plausible that the Appellant
would have contacts within the Russian government to acquire these rights. The
Appellant stated that he raised the $70,000 US by borrowing from friends, by
selling some of his property in Russia and from his family. Copies of documents showing
payments to Lev Khazauovich and Leonard Popov were introduced into evidence.
These individuals were friends of the Appellant who lent him some of the money
(approximately $20,000 US from Lev Khazauovich and $10,000 US from Leonard
Popov). One of these individuals is now in Moscow and the other is in Minnesota. Since the Appellant
is currently on social assistance and has limited financial resources, it would
not be practical to have required the Appellant to bring these individuals into
court to testify. Since the Appellant’s mother passed away in 2005, she could
not testify. I am satisfied, on a balance of probabilities that the Appellant
paid the $70,000 US and that he acquired the exclusive rights to develop the
casino project in this area near the Russia – China border and the feasibility
study. It should also be noted the Appellant’s income in 2000 from eLUXURY.com
and AudioBase was $195,631.
It is clear from the evidence, and
it is not disputed by the Respondent, that the Appellant’s intention with
respect to these rights was to sell them as quickly as possible and not to
develop the project himself. He was acquiring the rights to make a profit from
the sale of the rights itself.
Therefore, these rights (which
would be the exclusive rights to develop the casino project and the rights to
the feasibility study) would be inventory to him. Because the rights would be
inventory, and the value of this inventory at the end of 2000 was nil, the
Appellant is entitled to a deduction of $70,000 US for 2000. In the Amended
Reply the Respondent assumed that the rate of conversion from US dollars to
Canadian dollars used by the Appellant was 1.4852. The Respondent did not challenge
this exchange rate in the Amended Reply nor during the hearing. As a result the
rate of conversion that will be used will be 1.4852 and $70,000 US will
therefore be $103,964 in Canadian dollars.
As a result, the appeal is
allowed, in part and without costs, and the matter is referred back to the
Minister of National Revenue for reconsideration and reassessment on the basis
that the Appellant is entitled, in computing his income for the year 2000, to a
deduction of $103,964 ($70,000 US) in relation to the proposed Russian casino
Signed at Halifax,
Nova Scotia, this 30th day of July 2008.
“Wyman W. Webb”