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Citation: 2009 TCC 624
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Date: 20100118
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Docket: 2009-456(IT)I
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BETWEEN:
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MICHAEL NIEMEIJER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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AMENDED REASONS FOR JUDGMENT
Little J.
A.
FACTS
[1] The Appellant is a commercial pilot employed by KLM Royal Dutch
Airlines (“KLM”). The Appellant serves as the First Officer when he flies for
KLM.
[2] KLM uses Schiphol Airport (“Schiphol”) in Amsterdam, The Netherlands, as its main base of operations.
[3] KLM does not stipulate where its pilots have to live. However,
KLM does stipulate that its pilots must report to Schiphol at appointed times.
All KLM flights flown by KLM pilots originate at Schiphol and all flights
terminate at Schiphol.
[4] The KLM pilots must also be present at Schiphol to attend
training or refresher courses. All KLM pilots must be on standby at Schiphol at
times and they must report for medical checkups at Schiphol as required by KLM.
[5] On or about May 10, 2006, the Appellant moved with his family
from The Netherlands to Canada as a landed immigrant. The Appellant and his family reside in Vancouver, British Columbia, Canada.
[6] As of May 10, 2006, the Appellant has been a resident of Canada.
[7] In order to be able to have a place to live when he reports for
his employment duties at Schiphol, the Appellant maintained a small apartment
in Hoofddorp (close to Schiphol) for which he paid a monthly rent. The
Appellant shares this apartment with other KLM pilots. The Appellant determined
that his share of the rent paid for the apartment in 2006 (from May 10 to
December 31, 2006, was $1,530 Cdn).
[8] KLM reimburses the Appellant with per diem payments and
organizes and pays for hotel expenses while the Appellant is away from Amsterdam. However, KLM does not reimburse
the Appellant for any costs incurred by the Appellant while he is in Amsterdam before or after flights or for
the extra work activities (i.e. simulator sessions, medical checkups and while
the Appellant is on standby).
[9] KLM deducted various amounts from the Appellant’s income such
as taxes, pension contributions, etc. KLM also deducted Dutch Health Insurance
premiums. The Appellant determined that the proportionate share of the premium paid
for Dutch Health Insurance from May 10, 2006 to December 31, 2006 was $1,775
(Cdn).
[10] The Appellant filed an income tax return in The Netherlands for
the 2006 taxation year.
[11] The Appellant also filed an income tax return in Canada for the period commencing May 10,
2006 to December 31, 2006.
[12] When the Appellant filed his 2006 Canadian income tax return, he
claimed the following amounts as deductions:
1.
Share of rent for apartment in Hoofddorp - $1,530 Cdn.;
2.
Premium paid for Dutch Health Insurance - $1,775
Cdn.; and
3. Pension plan contributions
in the amount of $2,666.29.
(Note:
Some additional items were claimed by the Appellant on his Canadian income tax
return. These other items have either been allowed or the Appellant decided not
to claim them.)
[13] The Minister of National Revenue (the “Minister”) did not allow
the Appellant to deduct the apartment rent of $1,530 (Cdn.), the
premium of $1,775 (Cdn) paid for the Dutch Health Insurance and the
deduction of pension plan contributions in the amount of $2,666.29.
B. ISSUES
[14] Is the Appellant entitled to deduct the following amounts in
determining his income for the 2006 taxation year under the Canadian Income
Tax Act (the “Act”):
1.
Apartment rent - $1,530 (Cdn.);
2.
Premium paid on Dutch Health Insurance - $1,775 (Cdn.);
and
3. Pension plan contributions.
C. ANALYSIS
AND DECISION
Premium on Dutch
Health Insurance
[15] At the commencement of the hearing of the appeal, counsel for
the Respondent agreed that the Appellant is entitled to deduct pension plan
contributions in the amount of $4,148 for the 2006 taxation year. Counsel for
the Respondent also noted that the Appellant was initially denied the deduction
of pension plan contributions in the amount of $2,666.29.
[16] During the hearing,
counsel for the Respondent agreed that the premium paid for the Dutch Health
Care Insurance was an eligible medical expense pursuant to section 118.2 of the
Act. However, counsel for the Respondent said that since the premiums do
not exceed the lesser of $1,884 and 3% of the Appellant’s net income for the
2006 year, there is no amount that may be deducted by the Appellant as a
medical expense for that year.
[17] The Appellant said
that under the laws of The Netherlands, he was required to pay the premium for Dutch
Health Care Insurance. The Appellant said that the premium for health care
imposed by the government of The Netherlands was, in effect, a form of tax and
therefore he should be allowed to deduct this payment as a Foreign Tax paid in
determining his income for the purposes of the Canadian Act.
[18] While researching the
law on the issues under appeal, I concluded that it was necessary to determine
if the Canada-Netherlands Income Tax Convention (the “Tax Convention”) applied
to the premium paid to obtain Dutch Health Insurance.
[19] By letter dated
September 30, 2009, the Court asked the parties to comment on the following
questions:
(a)
Does the premium paid for Dutch Health Insurance
qualify as “wages tax” that is referred to in Article 2 of the Tax Convention?
(b)
Are there any provisions in the
Canada-Netherlands Tax Convention that would apply in the appeal?
[20] In a letter dated
October 13, 2009, the Appellant provided a response to the questions raised in
the letter from the Court. In his letter the Appellant said:
I believe this mandatory deduction does qualify as “wages
tax”, for the following reasons:
The Dutch Tax Department website explains that the
deducted amount is “… an income related contribution.” It goes on to say that “The
income-related contribution is calculated … (on) the total amount you receive
in: Taxable Wages …”. This clearly explains that the amount withheld is
directly related to one’s wage.
…
In summary: The amount deducted is directly related to
the wages of the individual. It is compulsory and is not individualized and
gets used for the general public welfare. I believe it can therefore be classed
as a “wages tax” under the Canada-Netherlands Tax Convention.
[21] By letter dated
November 30, 2009, counsel for the Respondent provided her comments to the
questions raised in the letter from the Court dated September 30, 2009. In
her letter, counsel for the Respondent said:
…
Article 2(3) of the Convention provides as follows:
3. The existing taxes to which the Convention shall
apply are in particular:
…
(b) in the Netherlands:
- the income tax (de inkomstenbelasting),
- the wages tax (de loonbelasting),
- the company tax (de vennotschapsbelasting),…,
- the dividend tax (de dividendbelasting),
(hereinafter referred to as “Netherlands tax”).
The reference in Article 2(3) to “the” wages
tax is clearly a reference to a specific tax imposed by Dutch law at the time
the Convention was entered into. That tax is not the same as the Health
Insurance premium in issue.
Direct taxation in the Netherlands is governed by the Wet op de Inkomstenbelasting 1964, the
income tax law, and the Wet op de Loonbelasting 1965, the wages tax law.
Wages tax is an income tax deducted at source from employees’ earnings. The
Dutch Tax Administration confirms that wages tax is “an advance income tax”
withheld by an employer and paid to the Tax and Customs Administration. As a
result of withholding wage tax, an employee “pays no or less income tax.”
The reference in Article 2(3) of the Convention to
“wages tax” is clearly a reference to taxes imposed under the wages tax law,
the Wet op de Loonbelasting.
The income-related contribution for Health Insurance
in the Netherlands is imposed under the Zorgverzekeringswet,
the health insurance legislation. It is a separate and distinct levy from the
wages tax imposed under the Wet op de Loonbelasting.
The Dutch Tax Administration further states that the
national Health Insurance contribution withheld by an employer is distinct from
wages tax:
When effecting payment, the employer/benefits agency
usually withholds wage tax and national insurance contributions (together known
as payroll tax), as well as the income-related contribution towards the
health care insurance scheme. The payroll tax is offset against the income
tax and the national insurance contributions eventually owed [emphasis added].
It is clear, therefore, that the income-related
contribution toward the national health insurance scheme is not the “wages tax”
referred to in Article 2(3) of the Convention.
Question 2
No other provisions in the [Tax]
Convention apply in this appeal because the premium for health insurance is not
a tax within the meaning of the Convention. Article 2 states that the
Convention applies only to levies that are “taxes” on income:
Article 2 [of the Tax Convention]
Taxes Covered
1.
This Convention shall
apply to taxes on income imposed on behalf of each of the States, irrespective
of the manner in which they are levied.
2.
There shall be regarded
as taxes on income all taxes imposed on total income, or on elements of income,
including taxes on gains from the alienation of movable or immovable property,
taxes on the total amounts of wages or salaries paid by enterprises, as well as
taxes on capital appreciation.
…
4.
The Convention shall
apply also to any identical or substantially similar taxes which are imposed
after the date of signature of the Convention in addition to, or in place of,
the existing taxes. The States or the competent authorities of the States shall
notify each other of any substantial changes which have been made in their
respective taxation laws.
Counsel
for the Respondent said, “The Health Insurance Premium is not a Tax”:
The Netherlands Ministry of Health, Welfare and Sport indicates
that health insurance is part of the Dutch social security scheme:
If you work and pay income tax in the Netherlands, you are subject to Dutch social security
legislation. This means you are obliged by law to take out health insurance.
[See: Ministry of Health, Welfare and Sport, “Compulsory health insurance if
you work in the Netherlands” (26 October 2009), online: Ministry of
Health, Welfare and Sport: <http://www.minvws.nl/en/folders/z/2008/compulsory-health-insurance-if-you-work-in-the-netherlands.asp>
at para. 2]
For tax treaty purposes, social security charges do
not generally qualify as taxes. In discussing the OECD Model Convention, upon
which most of Canada’s tax treaties are based, [Dr.] Klaus
Vogel states the following:
Nor do social security charges qualify as taxes. They
are directly connected with the benefit of enjoying the protection afforded by
the social security system… [Dr.
Klaus Vogel et al., Klaus Vogel on Double Taxation Conventions,
3rd ed. (Boston: Kluwer Law International, 1999) at para 29 of page 147]
Counsel
for the Respondent said:
The Asscher decision of the Court of Justice of
the European Communities (Fifth Chamber) explains the difference between the Netherlands’ national health insurance contributions and taxes.
That case concerned whether the Netherlands was permitted to take account, by means
of a different tax rate, of the fact that a non-resident was not required to
pay contributions to the national insurance scheme. The Advocate General’s
opinion discussed taxation in the Netherlands and recognized that although
wages tax and national insurance contributions are collected together in the Netherlands, they are not the same thing:
[d]irect taxation and social security contributions
belong to fundamentally different categories of levy, which are not in any way
directly related. The payment of social security contributions forms part of an
insurance scheme: it bestows entitlement to specific benefits. The payment of
taxes, however, which is unconnected with any insurance transaction, does not
give rise to any benefits as such. [See: Asscher v. Staatssecretaris van
Finacikn, [1996] All ER (EC) 757]]
[22] I agree with the
analysis as outlined by counsel for the Respondent in her brief. I have
concluded that the premiums paid for Dutch Health Insurance are not “wages tax”
within the meaning of the Tax Convention. It therefore follows that the
Appellant does not succeed on the first issue.
Rental Expenses of
Apartment
[23] Subsection 8(1) of
the Act provides that except as permitted by this section, no deductions
from employment are permitted.
[24] Paragraph 8(1)(g) of
the Act states:
Transport
employee's expenses
8.(1)(g) where the taxpayer was an
employee of a person whose principal business was passenger, goods, or
passenger and goods transport and the duties of the employment required the
taxpayer, regularly,
(i) to travel, away from the municipality
where the employer's establishment to which the taxpayer reported for work was
located and away from the metropolitan area, if there is one, where it was
located, on vehicles used by the employer to transport the goods or passengers,
and
(ii) while so away from that
municipality and metropolitan area, to make disbursements for meals and
lodging,
amounts so disbursed by the taxpayer in
the year to the extent that the taxpayer has not been reimbursed and is not
entitled to be reimbursed in respect thereof;
…
(Underlining
added)
[25] Since the Appellant
did not incur the rental expenses while travelling away from the municipality
or metropolitan area where Schiphol is located, I have concluded that the
Appellant is not entitled to deduct the rental payment pursuant to paragraph
8(1)(g) of the Act. In support of my conclusion, I refer to the Court
decision in Crawford v. The Queen (Bowie J.), 2002 D.T.C. 1883. This decision was upheld by the
Federal Court of Appeal in Crawford v. Canada,
2003 D.T.C. 5417.
[26] In the Crawford
case, the Federal Court of Appeal said:
… The context of paragraph 8(1)(g) of the
Income Tax Act, which requires that employees be away from their municipality
or metropolitan area, necessarily implies that "meals and lodging"
must be read conjunctively. The deduction contemplated is only available when
there are disbursements for both meals and lodging.
[27] The appeal is allowed, without costs,
to permit the Appellant to deduct pension plan contributions in the amount
of $4,148. The appeal is dismissed with respect to the other items noted above.
Signed at Vancouver,
British Columbia, this 18th
day of January 2010.
Little
J.
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