Citation: 2010TCC1
Date:20090111
Docket: 2007-2523(IT)I
2007-4728(IT)I
BETWEEN:
JAMES NIGHTINGALE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Miller J.
[1] Mr. Nightingale, a Canadian resident and
Canadian citizen, entered a personal services contract with Vietnam Veterans of
America Foundation (the “VVAF”) in late 2004. He was to serve as a Technical Advisor
in Iraq for VVAF’s Information Management and Mine
Action Program. He worked for VVAF in Iraq in late 2004 and
all of 2005. The issue is whether he is entitled to a deduction of his income
earned from VVAF for this period based on:
a)
subparagraph 110(1)(f)(iii)
of the Income Tax Act (the “Act”), which deducts income from
employment with a prescribed international organization; in this regard, Mr.
Nightingale claims his employment was indirectly with the United Nations, a
prescribed international organization;
b)
Article 15 of the Canadian
Charter of Rights and Freedoms (the “Charter”), claiming that Mr.
Nightingale has been discriminated against in two ways:
i) as a Canadian citizen
resident in Canada versus a United States citizen resident in Canada who,
according to Mr. Nightingale’s agent, would not be taxed in the United States
due to their danger pay laws and also not taxed in Canada due to the
application of Article XV of the Canada–United-States Income Tax Convention
(1980) (the “Convention”); and
ii) as a civilian Canadian
versus Canadian military and police who are not taxed in Canada in accordance with subparagraph 110(1)(f)(v) of
the Act.
I find none of the Appellant’s arguments
persuasive.
Facts
[2] In the years
preceding and years subsequent to Mr. Nightingale’s work with the VVAF in 2004 and 2005, he worked directly
for the United Nations. However, in late 2004 and throughout 2005, the
United Nations, for security reasons, was not officially in Iraq. It was necessary for the United Nations to contract
work to other organizations. This is explained in a memo dated April 19, 2004,
from the United Nations Mine Action Service (the “UNMAS”):
…
Given the hazardous security situation and the restriction on the
United Nations to directly deploy staff in Iraq, the United Nations and the
NMAA have developed a strategy to provide mine-action services through NGO’s or
commercial companies that do not have restrictions on their presence in the
country or through remotely managed projects using existing national expertise
and resources.
…
This situation is also confirmed in a letter from the United
Nations Development Program (the “UNDP”) to the Canada Revenue Agency dated
November 23, 2006:
Subject: Cooperation between UNDP and Vietnam Veterans of America Foundation for Mine Action in Iraq
This is to confirm that during the period between January 14, 2005,
and April 30, 2006, the United National Development Program (UNDP) contracted
for Vietnam Veteran’s of America Foundation (VVAF) as our implementation
partner for the provision of technical advisory support to the Iraqi National
Mine Action Authority as well as it’s regional centers, the Regional Mine
Action Centers in Erbil and Basra, in Iraq.
[3] VVAF was one of the
NGOs with whom the United Nations contracted for services in Iraq. VVAF in turn contracted with Mr.
Nightingale, the Consultant, which contract stipulated in part, the following:
…
VVAF has retained the services of the Consultant to act as a
Technical Advisor for VVAF’s Information Management & Mine Action Programs
in cooperation with the Department of State (“DOS”) through its project,
Landmine Impact Survey, Iraq.
…
The Consultant shall work at the direction of William Barron and
Joseph Donahue and shall make his monthly reports to Mr. Barron. …
In consideration for these services, VVAF shall compensate the
Consultant in the amount of $8500 per month. … It is understood that the
Consultant is an independent contractor.
This Agreement is subject to and contingent upon adequate funding
VVAF programs (including its agreement with the DOS), and satisfactory
performance of the Consultant. …
In a letter of February 16, 2006, to his agent, Mr.
Nightingale stated:
…
It was necessary for me to take the employment offered by VVAF in Iraq as it was the only work open to me at
that particular time in my specific field. We hoped that by seizing whatever
employment VVAF offered, that I would be “first in line” when another position
came up with the UN. …
[4] With respect to
funding, Mr. Nightingale outlined in an email to his agent, that he understood
funding came from the International Monitoring and Advisory Board Members
including representatives of the Arab Fund for Economic and Social Development,
the International Monetary Fund, United Nations, the World Bank and the
Iraqi Interim Government.
[5] Mr. Nightingale did work
in northern Iraq (Erbil) and later in 2005 in southern Iraq (Basrah). It is clear that his
work was involved with United Nations’ projects, and he would, on
occasion, have to leave Iraq to communicate with United Nations’ personnel such as UNDP
Mine Action Program Managers. It was also clear that Mr. Nightingale’s
remuneration was received directly from VVAF for the period in question, though
deposited to a United Nations Federal Credit Union account in New York. VVAF in Washington reviewed Mr.
Nightingale’s monthly timesheets and expense accounting.
[6] Mr. Nightingale did not
file United States Income Tax Returns for the period in issue. He reported
$131,943 of employment income from VVAF in 2005 and $20,416 in 2004 for
Canadian tax purposes. He seeks now to rely on subparagraph 110(1)(f) of
the Act and Article 15 of the Charter to have these amounts
excluded from income for Canadian tax purposes.
Analysis
[7] Mr. Nightingale has
three arguments:
i. Subparagraph
110(1)(f)(iii) of the Act provides for a deduction of income from
employment with the United Nations, a prescribed international organization (prescribed
by regulation 8900 of the Income Tax Regulations (the
“Regulations”)). Mr. Nightingale’s agent argued that Mr. Nightingale’s
employment was indirectly with the United Nations and thus qualifies for this
deduction.
ii. Subparagraph
110(1)(f) of the Act is discriminatory under Article 15 of the Charter
as it discriminates against Canadian citizens who are Canadian residents versus
United
States
citizens who are Canadian residents. Mr. Bowerman, Mr. Nightingale’s
agent, argues that the United States citizen - Canadian resident, in the same position
as Mr. Nightingale in Iraq, would not be taxable in Canada and that is
discrimination on the basis of national origin.
iii. Section
110(1)(f) of the Act is discriminatory under Article 15 of the Charter
as it discriminates against Canadian civilians working on missions in Iraq
versus Canadian military or police deployed in Iraq. Their income is deductible
pursuant to subparagraph 110(1)(f)(v).
Subparagraph 110(1)(f)(iii)
argument
[8] Subparagraph
110(1)(f)(iii) reads as follows:
110 (1) For the
purpose of computing the taxable income of a taxpayer for a taxation year, there
may be deducted such of the following amounts as are applicable
(a) …
(f) any social assistance payment made on the basis
of a means, needs or income test and included because of clause 56(1)(a)(i)(A)
or paragraph 56(1)(u)
in computing the taxpayer's income for
the year or any amount that is
(i) …
(iii) income from
employment with a prescribed international organization,
Section 8900 of the Regulations
prescribes the United Nations.
[9] The key issue regarding
the application of these provisions is whether Mr. Nightingale was
employed by the United Nations. There is no question that VVAF was not a
prescribed international organization, as it was not a specialized agency
brought into relationship with the United Nations in accordance with Article 63
of the Charter of the United Nations.
[10] Mr. Nightingale was not
an employee of the United Nations. He had no contractual relationship with the
United Nations. There was no evidence of any direct control of Mr.
Nightingale’s activities by the United Nations. The United Nations did not
pay him. Mr. Nightingale acknowledged in correspondence that he was contracted
with VVAF – indeed, a copy of the contract was produced. He was remunerated by
VVAF. The United Nations, given its official position regarding Iraq, could not have been
the employer, and I find, was not the employer.
[11] Mr. Bowerman made a
valiant effort to rely on case law to establish a substance over form argument,
that the contract with VVAF was not the true legal arrangement, though was
effectively just a screen for the employment arrangement between Mr.
Nightingale and the United Nations. The evidence does not bear this out. The
cases of Dunbar v. R.
and Purves v. R.
do not assist Mr. Bowerman in this regard.
[12] This same issue was
dealt with recently by Justice Little in the case of Herchak v. R.. He addressed some
of the same precedents referred to by Mr. Bowerman and had this to say:
…
11. The Tax Court considered a similar issue in the decision of
Creagh v. Canada, [1997] 1 C.T.C. 2392. In that
case, the Appellant had argued that he was entitled to the exemption from tax
provided in subparagraph 110(1)(f)(iii) because he was employed by
the United Nations. The facts indicated the Appellant was an employee of
Canadian Helicopter who earned income while participating in a peacekeeping
mission in Cambodia. The Court reviewed the relevant provisions and stated
that, to succeed in a claim of the type being made by the Appellant, there has
to be a contractual relationship between the taxpayer and the United Nations.
It is not enough that a taxpayer works on a peacekeeping mission, the worker has
to be employed by the United Nations. The Court found that the exemption
did not apply.
…
15. In Lalancette v. The Queen, 2001 DTC
352, the Tax Court dealt with a taxpayer
who was a police officer "on loan" to the United Nations for a
mission in Haiti. The taxpayer in that case was apparently subject to United Nations
authority and daily supervision. The taxpayer was also apparently granted
rights and immunities as a representative of the United Nations. The Court
in Lalancette stated that a taxpayer cannot
unilaterally declare himself to be an employee of the United Nations, and
evidence from the United Nations is necessary for a successful claim.
16. The Tax Court's decision in Lalancette
was confirmed by the Federal Court of Appeal, 2002 FCA
335. The Federal Court of Appeal stated
that the taxpayer was not an employee of the United Nations, as ultimate
control of the taxpayer remained with the RCMP. Although daily control of the
Appellant may have rested with the United Nations in Haiti, ultimately the
Appellant was controlled by the RCMP. In this situation, the Appellant may have
been operating in a country subject to governance by the United Nations, but it
is clear that ultimately control of the Appellant lay with Chemonics who hired,
supervised and was responsible for any termination of the Appellant's contract.
…
22. In the court decisions referred to above, the Tax Court has
held that when a person is hired by a company, which contracts with a
corporation which, in turn, has a contract with the United Nations, there is no
deduction pursuant to paragraph 110(1)(f) of the Act.
The Appellant remained the employee of Chemonics despite working in the course
of a project in a United Nations controlled country.
23. As stated by the Federal Court of Appeal in Lalancette, the relevant enquiry for determining whether a
taxpayer is an employee of the United Nations is determining who controls
the employee. In this appeal, the evidence is clear that the United Nations did
not control the Appellant, either directly on a day-to-day basis or ultimately
in terms of discipline or termination.
…
[13] Mr. Nightingale is in no
different position than Mr. Herchak, and I reach the same conclusion as Justice
Little. The contractual relationship was between Mr. Nightingale and VVAF, not
with the United Nations. Mr. Nightingale cannot avail himself of the
subparagraph 110(1)(f)(iii) deduction, as he has been unable to prove he
was employed with the United Nations.
[14] I should note at this point
that the Respondent raised an argument not addressed in the pleadings, and that
is the fact that Mr. Nightingale’s contract with VVAF was drawn up as of one of
an independent contractor and not an employee. This would deny him access to
the subparagraph 110(1)(f)(iii) deduction altogether. Mr. Bowerman
objected to this argument on the basis it was not the issue the Appellant
believed the Respondent and Appellant had identified for purposes of this
litigation. Mr. Bowerman suggested if the Crown was going to raise the issue at
trial, he wanted an adjournment so he could put the issue of Mr. Nightingale’s
residence in issue. To this point, the parties had agreed that Mr. Nightingale
was a Canadian resident. It is unnecessary for me to deal with these issues
and, indeed, I was not presented with sufficient evidence to deal with them. I
have, though, been able to reach a decision on the facts presented to me on the
basis that Mr. Nightingale earned employment income as a Canadian resident.
Charter argument based on
citizenship
[15] The pertinent provisions
are Article XV and Article XXV of the Convention and Article 15 of the Charter
and subparagraph 110(1)(f)(i) of the Act. They are reproduced as
follows:
Article
XV
1.
Subject to the provisions of Articles XVIII (Pensions and Annuities) and
XIX (Government Service), 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 a calendar year in the other Contracting State shall be taxable only in the
first-mentioned State if:
(a) such
remuneration does not exceed ten thousand dollars ($10,000) in the currency of
that other State; or
(b) the
recipient is present in the other Contracting State for a period or periods not
exceeding in the aggregate 183 days in that year and the remuneration is not
borne by an employer who is a resident of that other State or by a permanent
establishment or a fixed base which the employer has in that other State.
Article
XXV
1.
Citizens of a Contracting State, who
are residents of the other Contracting State, shall not be subjected in that other State to any taxation or any
requirement connected therewith which is other or more burdensome than the
taxation and connected requirements to which citizens of that other State in
the same circumstances are or may be subjected.
2.
Citizens of a Contracting State, who are not residents of the other
Contracting State, shall not be subjected in that other State to any taxation
or any requirement connected therewith which is other or more burdensome than
the taxation and connected requirements to which citizens of any third State in
the same circumstances (including State of residence) are or may be subjected.
ARTICLE 15 – CANADIAN CHARTER
15.(1) Every individual is equal before and under the law and has the
right to the equal protection and equal benefit of the law without
discrimination and, in particular, without discrimination based on race,
national or ethnic origin, colour, religion, sex, age or mental or physical
disability.
Subparagraph
110(1)(f)(i) Income Tax Act
(1) For the
purpose of computing the taxable income of a taxpayer for a taxation year, there
may be deducted such of the following amounts as are applicable
(a)
…
(f)
any social assistance payment made on the basis of a means, needs or
income test and included because of clause 56(1)(a)(i)(A)
or paragraph 56(1)(u)
in computing the taxpayer's income for
the year or any amount that is
(i) an amount exempt from
income tax in Canada because of a
provision contained in a tax convention or agreement with another country that
has the force of law in Canada,
[16] Mr. Bowerman argues that
Article XV of the Convention permits the United States to tax Mr. Nightingale,
even though a Canadian resident, because his employment was, in accordance with
Article XV of the Convention, "exercised" in the United States. Mr. Bowerman’s
argument gets a little murky at this point. He seems to suggest that the United
States citizen resident in Canada, by relying on Article XV and Article XXV,
could then also rely on subparagraph 110(1)(f)(i) of the Act
to escape Canadian tax liability. My interpretation of Article XV of the Convention,
however, is that if the Canadian resident is exercising employment in the United States then Article XV would
apply, regardless of the citizenship. Mr. Bowerman, however, has not argued
that Article XV applied to Mr. Nightingale, but somehow suggests that
there is discrimination between the Canadian citizen and the United States citizen. I simply
do not follow this reasoning. If Article XV applies to a Canadian resident
because that resident is working in the United States, then there is no
Canadian tax liability. That resident would be subject to the Internal
Revenue Code and may or may not be taxable depending on the provisions of
the Code.
[17] If Article XV does
not apply, that is, the employment is not exercised in the United States, which
I find is the situation before me, then the Canadian resident would be subject
to Canadian tax, again regardless of citizenship. In either event, there does
not appear to me to be any discrimination based on citizenship.
[18] Mr. Bowerman raises
Article XXV of the Convention to suggest that pursuant to that Article,
a United States citizen might be treated more favourably than a Canadian
citizen, both resident in Canada, facing circumstances similar to Mr. Nightingale’s. Again,
I do not follow this approach. Article XXV deals with the situation of an
American citizen residing in Canada being taxed greater than the Canadian citizen residing in Canada. That is simply not the
situation before me. There are no parallels to Mr. Nightingale’s situation and
I can discern no discrimination based on citizenship arising from this Article.
There is simply no discrimination based on citizenship that brings the Canadian
Charter into play.
Charter argument based on
occupation
[19] Subparagraph 110(1)(f)(v)
of the Act reads:
110(1) For the
purpose of computing the taxable income of a taxpayer for a taxation year, there
may be deducted such of the following amounts as are applicable
(a)
…
(f)
any social assistance payment made on the basis of a means, needs or
income test and included because of clause 56(1)(a)(i)(A)
or paragraph 56(1)(u)
in computing the taxpayer's income for
the year or any amount that is
(i) …
(v) the lesser of
(A) the employment income earned by the taxpayer as a member
of the Canadian Forces, or as a police officer, while serving on
(I) a deployed operational mission (as determined by the Department
of National Defence) that is assessed for risk allowance at level 3 or higher
(as determined by the Department of National Defence),
(II) a prescribed mission that is assessed for risk allowance at
level 2 (as determined by the Department of National Defence), or
(III) any
other mission that is prescribed, and
(B) the employment income that would have been so earned by the taxpayer if the taxpayer had been paid
at the maximum rate of pay that applied, from time to time during the mission,
to a non-commissioned member of the Canadian Forces;
to the extent that it is included in computing the taxpayer's income for
the year;
The Appellant’s argument is that the Canadian military
and the police get a deduction courtesy of these provisions, and it is
discrimination that a civilian does not get such a deduction. I would describe
this as a discrimination based on occupation status. The Supreme Court of
Canada had occasion to hear an Article 15 Charter case where
discrimination based on occupation status was argued. In the case of Baier
v. Alberta,
the Supreme Court of Canada stated:
63 The appellants submit that the LAEA
Amendments violate s. 15(1) of the Charter by
infringing their right to the equal protection and equal benefit of the law
without discrimination on the alleged analogous ground of occupational status.
There is no need to describe here the steps in a s. 15(1) analysis, which were
elaborated by Iacobucci J. in Law, at paras. 21-87
and summarized at para. 88, and have been reiterated in many cases since.
Applying this approach, I find that there is differential treatment of school employees
under the LAEA Amendments, as compared with the comparator group identified by
the appellants, which consists of municipal employees. However, this
differential treatment is not based on an enumerated or analogous ground.
64 In Corbiere v. Canada (Minister of
Indian and Northern Affairs), [1999] 2
S.C.R. 203, at para. 13, McLachlin J. (as
she then was) and Bastarache J. for the majority discussed how to identify
analogous grounds:
What then are the criteria by which we identify a ground of
distinction as analogous? The obvious answer is that we look for grounds of
distinction that are analogous or like the grounds enumerated in s. 15 -- race,
national or ethnic origin, colour, religion, sex, age, or mental or physical
disability. It seems to us that what these grounds have in common is the fact
that they often serve as the basis for stereotypical decisions made not on the
basis of merit but on the basis of a personal characteristic that is immutable
or changeable only at unacceptable cost to personal identity... . Other factors
identified in the cases as associated with the enumerated and analogous
grounds, like the fact that the decision adversely impacts on a discrete and
insular minority or a group that has been historically discriminated against,
may be seen to flow from the central concept of immutable or constructively
immutable personal characteristics, which too often have served as illegitimate
and demeaning proxies for merit-based decision making.
They also stated at para. 8 that
analogous grounds "stand as constant markers of suspect decision making or
potential discrimination".
65 I cannot find any basis for
identifying occupational status as an analogous ground on the evidence
presented in this case. Neither the occupational status of school employees nor
that of teachers have been shown to be immutable or constructively immutable
characteristics. School employees cannot be characterized as a discrete and
insular minority. The appellants have not established that the occupational
status of school employees is a constant marker of suspect decision making or
potential discrimination.
[20] I find Mr. Nightingale’s
position as a Canadian civilian employed in a combat zone, as opposed to a
Canadian soldier employed in a combat zone, is discrimination based on occupation
status and, therefore, not covered as an analogous ground under Article 15 of
the Charter. The same finding could be made in the comparison of a civilian
employed by the United Nations versus the civilian employed by private enterprise
working in Iraq. These are differences
that do not go to the characteristics or stereotypes intended to be captured by
Article 15 of the Charter.
[21] In conclusion, Mr.
Nightingale has not satisfied me that he either qualifies for a deduction pursuant
to subparagraph 110(1)(f) of the Act, nor that he has been
discriminated against in a fashion that invokes Article 15 of the Charter.
His appeals are dismissed.
Signed at Ottawa, Canada, this 11th day of January, 2010.
"Campbell J. Miller"
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