Nanne v. The Queen, docket 98-2043-IT-G

Date: 19991210

Docket: 98-2043-IT-G; 98-2070-IT-G

BETWEEN:

LOUIS V. NANNE, STANLEY MIKITA,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Beaubier, J.T.C.C.

[1] These appeals pursuant to the General Procedure were heard together on common evidence at Toronto, Ontario on November 23, 1999. The Appellants were the only witnesses. They have appealed the levy of tax under paragraph 212(1)(h) of the Income Tax Act on pension benefits which they received in 1997 from the National Hockey League Pension Society located in Montreal.

[2] In respect to Mr. Nanne the Agreed Statement of Facts and the assumptions in paragraph 10 of the Reply read:

AGREED STATEMENT OF FACTS

THE SOURCE OF THE FUNDS AT ISSUE

1. The Appellant was employed as a professional hockey player with the Minnesota North Stars ("Minnesota") of the National Hockey League (the "NHL") from 1968 to 1978.

2. At all material times the Taxpayer was a resident of the United States.

3. During the relevant period the Taxpayer's United States employer contributed on his behalf to the National Hockey League Club Pension Plan (the "Club Plan"). These contributions eventually generated a surplus in the pension plan.

4. The contributions to the Club Plan were held by the National Hockey League Pension Society (the "Pension Society"), which is located in Montreal, Quebec, Canada and was so located at all material times.

5. An issue arose as to who was entitled to the surplus, the players, including the Appellant, or the NHL Clubs. As a result of the judgement of the Honourable Mr. Justice Adams of the Ontario Court of Justice (General Division) (as the Court was then known), dated October 21, 1992, the players, including the Appellant, became entitled to the surplus held by the Pension Society.

6. In 1997, the Appellant was entitled to receive pension benefits of $60,734.82 (US). Of that $60,734.82, the Pension Society withheld $15,183.71 (US), being 25% of $60,735.82 in accordance with subsection 212(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5^th Suppl.), as amended ("the Act").

7. In 1997, the Appellant received pension benefits of $60,734.82 (US) from the Pension Society from which $15,183.71(US) was remitted to the Minister of National Revenue as non-resident tax. On objection, the $15,183.71 was reduced to $9,110.22, being 15% of $60,734.82.

THE NHL STANDARD PLAYER'S CONTRACT

8. The Appellant signed a personal services contract with the owner of the Minnesota North Stars. He also signed a NHL Standard Players Contract with the Hockey Club of Minnesota Inc., for each year the Appellant was employed by the Minnesota North Stars as a professional hockey player.

THE LEAGUE SCHEDULE – LENGTH, TOTAL GAMES AND GAMES IN CANADA

10. In 1968-69 there were 12 NHL teams, two of which were located in Canada and ten of which were in the United States, including the Minnesota North Stars. One half of the games were played in Minnesota, and the other half in the opposing teams' home arena. As the NHL continued to expand during the years the Appellant played hockey, the number of games and length of the season also increased.

11. The chart on the next page sets out the number of home games, away games, total number of regular season games played by the Minnesota North Stars, the number of those games played in Canada, and the length of the regular season for each year that the Appellant was employed as a professional hockey player by the Minnesota North Stars.

NHL REGULAR SEASON GAMES

– MINNESOTA NORTH STARS

SEASON	# OF TEAMS	HOME GAMES	AWAY GAMES	TOTAL GAMES	GAMES IN CANADA	TOTAL DAYS IN SEASON
1968/69	12	38	38	76	6	171
1969/70	12	38	38	76	6	177
1970/71	14	39	39	78	9	178
1971/72	14	39	39	78	9	178
1972/73	16	39	39	78	7	177
1973/74	16	39	39	78	8	180
1974/75	18	40	40	80	6	180
1975/76	18	40	40	80	7	181
1976/77	18	40	40	80	7	181
1977/78	18	40	40	80	7	180

THE PLAYOFFS AND STANLEY CUP GAMES

12. After the regular season, the Minnesota North Stars were in the post-season playoffs and Stanley Cup games in a number of years during the Appellant's career. The chart on the next page sets out the number of home games, away games, total post-season games, the number of those games played in Canada and the number of days the Minnesota North Stars played in the post-season for each year the Appellant was employed by the Minnesota North Stars as a professional hockey player.

NHL POST-SEASON GAMES – MINNESOTA NORTH STARS

POST-SEASON	HOME GAMES	AWAY GAMES	TOTAL GAMES	GAMES IN CANADA	POST SEASON TOTAL DAYS
1968/69	0	0	0	0	0
1969/70	3	3	6	0	11
1970/71	6	6	12	3	25
1971/72	3	3	6	0	14
1972/73	3	3	6	0	11
1973/74	0	0	0	0	0
1974/75	0	0	0	0	0
1975/76	0	0	0	0	0
1976/77	1	1	2	0	4
1977/78	0	0	0	0	0

******

REPLY TO THE NOTICE OF APPEAL

10. In assessing the Appellant, the Minister acted, inter alia, upon the following assumptions:

(a) during the period 1968 to 1978, the Appellant was a professional hockey player for the Minnesota North Stars of the National Hockey League (the "NHL");

(b) the National Hockey League Pension Society (the "Pension Society") is located in Montreal, Quebec and was so located at all material times;

(c) as a result of a judgment of the Honourable Mr. Justice Adams of the Ontario Court of Justice (General Division) dated October 21, 1992, the Appellant became entitled to receive additional pension benefits from the Pension Society;

(d) in 1997, the Appellant was entitled to receive pension benefits of $60,734.82 (US);

(e) the Pension Society withheld $15,183.71 (US) or 25% of the amount payable (25% of 60,734.82), in accordance with subsection 212(1) of the Income Tax Act, R.S.C. 1985 (5^th Supp.) as amended (the "Act") and remitted the amount so withheld to the Minister of National Revenue (the "Minister");

(f) in 1997, the Appellant received pension benefits of $60,734.82 (US) from the Pension Society from which $15,183.71 (US) was withheld for non-resident tax;

(g) by reassessment, notice of which was dated July 8, 1998, the Minister reduced the rate of withholding tax from 25% to 15% in accordance with Article XVIII of the Canada-United States Income Tax Convention, 1980 and issued a refund to the Appellant of the excess withholding tax;

(h) during the 1968 – 1978 period, the Appellant was employed as a professional hockey player with the Minnesota North Stars to perform employment services in both the United States and Canada;

(i) as part of his employment contract, the Appellant played at regularly scheduled NHL hockey games in Canada and also participated in training and played in playoff games in Canada;

(j) during the 1968-1978 period, the Appellant was employed in Canada and was not "only occasionally employed in Canada" within the meaning of subparagraph 212(1)(h)(vi) of the Act;

All of the assumptions except 10(j) are correct. 10(j) is in dispute.

[3] In respect to Mr. Mikita, the Agreed Statement of Facts and assumptions in paragraph 14 of the Reply read:

AGREED STATEMENT OF FACTS

THE SOURCE OF THE FUNDS AT ISSUE

1. The Appellant was employed as a professional hockey player with the Chicago Black Hawks of the National Hockey League (the "NHL") from 1958 to 1980.

2. At all material times the Taxpayer was a resident of the United States.

3. During the relevant period the Taxpayer's United States employer contributed on his behalf to the National Hockey League Club Pension Plan (the "Club Plan"). These contributions eventually generated a surplus in the pension plan which was required to be used to provide additional benefits to the Taxpayer.

4. The contributions to the Club Plan were held by the National Hockey League Pension Society (the "Pension Society"), which is located in Montreal, Quebec, Canada and was so located at all material times.

5. An issue arose as to who was entitled to the surplus, the players, including the Appellant or the NHL Clubs. As a result of the judgement of the Honourable Mr. Justice Adams of the Ontario Court of Justice (General Division) (as the Court was then known), dated October 21, 1992, the players, including the Appellant, became entitled to the surplus held by the Pension Society.

6. In 1997, the Appellant was entitled to receive pension benefits of $128,462.87 (US). Of that $128,462.87, the Pension Society withheld $32,115.72 (US), being 25% of $128,462.87 in accordance with subsection 212(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5^th Suppl.), as amended ("the Act").

7. In 1997, the Appellant received pension benefits of $128,462.87 (US) from the Pension Society from which $32,115.72 (US) was remitted to the Minister of National Revenue as non resident tax. On objection, the $32,115.72 was reduced to, $19,269.43 being 15% of $128,462.87.

THE NHL STANDARD PLAYER'S CONTRACT

8. The Appellant signed a NHL Standard Player's Contract with the Chicago Black Hawks Hockey Club for each year the Appellant was employed by the Chicago Black Hawks as a professional hockey player.

THE LEAGUE SCHEDULE – LENGTH, TOTAL GAMES AND GAMES IN CANADA

8. In 1959-60, there were only two Canadian and four U.S. based clubs in the NHL. One half of the games in the League Schedule were played in Chicago and the other half were played in the opposing teams' arenas. From 1967 onwards, as the NHL expanded during the years the Appellant played hockey, the number of games and length of the season also increased.

9. The chart on the next page sets out the home games, away games, the total number of regular season games played by the Chicago Black Hawks, the number of those games played in Canada, and the length of the regular season for each year that the Appellant provided services as a professional hockey player to the Chicago Black Hawks.

NHL REGULAR SEASON GAMES

– CHICAGO BLACK HAWKS

SEASON	# OF TEAMS	HOME GAMES	AWAY GAMES	TOTAL GAMES	GAMES IN CANADA	TOTAL DAYS IN SEASON
1958/59	6	35	35	70	14	165
1959/60	6	35	35	70	14	164
1960/61	6	35	35	70	14	165
1961/62	6	35	35	70	14	169
1962/63	6	35	35	70	14	169
1963/64	6	35	35	70	14	168
1964/65	6	35	35	70	14	169
1965/66	6	35	35	70	14	165
1966/67	6	35	35	70	14	165
1967/68	12	37	37	74	10	171
1968/69	12	38	38	76	8	171
1969/70	12	38	38	76	8	177
1970/71	14	38	38	78	8	178
1971/72	14	38	38	78	9	178
1972/73	16	38	38	78	8	177
1973/74	16	38	38	78	7	180
1974/75	18	40	40	80	7	180
1975/76	18	40	40	80	7	181
1976/77	18	40	40	80	7	181
1977/78	18	40	40	80	7	180
1978/79	17	40	40	80	7	179
1979/80	21	40	40	80	12	179

10. The Chicago Black Hawks played in many play-off and Stanley Cup Games during the Appellant's career. The chart on the following page sets out the home games, away games, total number of post-season games, the number played in Canada, and the number of days between the end of the regular season and the conclusion of the Black Hawks' post-season play for each year the Appellant was employed by the Chicago Black Hawks as a professional hockey player.

NHL POST-SEASON GAMES – CHICAGO BLACK HAWKS

POST-SEASON	HOME GAMES	AWAY GAMES	TOTAL GAMES	GAMES IN CANADA	POST SEASON TOTAL DAYS
1958/59	3	3	6	3	11
1959/60	2	2	4	2	11
1960/61	6	6	12	3	28
1961/62	6	6	12	6	28
1962/63	3	3	6	0	14
1963/64	4	3	7	0	18
1964/65	6	8	14	4	34
1965/66	3	3	6	0	16
1966/67	3	3	6	3	16
1967/68	5	6	11	3	28
1968/69	0	0	0	0	0
1969/70	4	4	8	0	21
1970/71	10	8	18	4	44
1971/72	4	4	8	0	21
1972/73	9	7	16	3	39
1973/74	6	5	11	0	23
1974/75	3	5	8	0	16
1975/76	2	2	4	2	14
1976/77	1	1	2	0	4
1977/78	2	2	4	0	14
1978/79	2	2	4	0	14
1979/80	2	2	4	0	14

******

REPLY TO THE NOTICE OF APPEAL

14. In assessing the Appellant, the Minister acted, inter alia, upon the following assumptions:

(a) during the period 1958 to 1980, the Appellant was a professional hockey player for the Chicago Black Hawks of the National Hockey League (the "NHL");

(b) the National Hockey League Pension Society (the "Pension Society") is located in Montreal, Quebec and was so located at all material times;

(c) as a result of a judgment of the Honourable Mr. Justice Adams of the Ontario Court of Justice (General Division) dated October 21, 1992, the Appellant became entitled to receive additional pension benefits from the Pension Society;

(d) in 1997, the Appellant was entitled to receive pension benefits of $128,462.87 (US);

(e) the Pension Society withheld $32,115.72 (US) or 25% of the amount payable (25% of $128,462.87), in accordance with subsection 212(1) of the Income Tax Act, R.S.C. 1985 (5^th Supp.) as amended (the "Act") and remitted the amount so withheld to the Minister of National Revenue (the "Minister");

(f) in 1997, the Appellant received pension benefits of $128,462.87 (US) from the Pension Society from which $32,115.72 (US) was withheld for non-resident tax;

(g) by reassessment, notice of which was dated July 8, 1998, the Minister reduced the rate of withholding tax from 25% to 15% in accordance with Article XVIII of the Canada-United States Income Tax Convention, 1980 and issued a refund to the Appellant of the excess withholding tax;

(h) during the 1958 – 1980 period, the Appellant was employed as a professional hockey player with the Chicago Black Hawks to perform employment services in both the United States and Canada;

(i) as part of his employment contract, the Appellant played at regularly scheduled NHL hockey games in Canada and also participated in training camp and played in playoff and Stanley Cup games in Canada;

(j) during the 1958 – 1980 period, the Appellant was employed in Canada and was not "only occasionally employed in Canada" within the meaning of subparagraph 212(1)(h)(vi) of the Act;

All of the assumptions except 10(j) are correct. 10(j) is in dispute.

[4] Paragraph 212(1)(h) of Part XIII as it affects the withholdings in question reads:

PART XIII

Tax on Income from Canada of Non-Resident Persons

212(1) Every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to the non-resident person as, on account or in lieu of payment of, or in satisfaction of

...

(h) a payment of a superannuation or pension benefit ...

except such portion, if any, of the payment as may reasonably be regarded as attributable to services rendered by the person, to or in respect of whom the payment is made, in taxation years

(v) during which the person at no time was resident in Canada, and

(vi) throughout which the person was not employed, or was only occasionally employed, in Canada;

(emphasis added)

The Appellants were not residents in Canada. Thus, the question is whether the Appellants' pension benefits were attributable to services they rendered in taxation years throughout which they were only occasionally employed in Canada.

[5] Even though they were employed by United States corporations and paid in the United States, the law is that, when they worked in Canada, as part of their duties of employment, they were employed in Canada. This question was not argued or disputed before the Court.

[6] The argument centred on the meaning to be given to the phrase "only occasionally employed".

[7] IT-76R2, dealing with paragraph 212(1)(h) states in paragraph 2:

2. Where pension benefits are paid after 1979 in respect of a person who was throughout any particular calendar year not employed in Canada (or only occasionally employed in Canada) and not resident in Canada, the portion of such benefits that may reasonably be regarded as attributable to services rendered in any such year(s) is not subject to non-resident tax. For payments made in 1979 and prior years this exemption applied only to payments reasonably attributable to services rendered in years throughout which the person was neither resident in Canada nor employed in Canada. The Department interprets the words "only occasionally employed in Canada" to mean that, throughout a particular taxation year, the taxpayer's regular place of employment was outside Canada and his duties in Canada were limited to a few brief visits to carry out the duties of his employment.

Thus the emphasis Revenue Canada puts on the phrase is that of time. This emphasis is borne out by the words of (vi). It refers to "taxation years" ... "throughout which the person

- was not employed, or

- was only occasionally employed, in Canada"

In drafting this, the word "in" could have been used instead of "throughout". "In" does not raise a concept of measuring time. "Throughout" does.

[8] It is for this reason and because of paragraph 2 of IT-76R2 which states that "his duties in Canada were limited to a few brief visits ..." that the Court finds that the phrase "only occasionally employed" refers to the frequency that each Appellant worked in Canada, and not to predictability or to regularity. Moreover, as Appellants' counsel pointed out, most non-resident employees' attendances in Canada would be on a predictable, or assigned, basis. Indeed, "regular" visits could be once per year.

[9] "Occasionally" is an adverb. It is defined in the Oxford English Dictionary as meaning:

1. By chance, casually, accidentally.

2. On, for, or with a view to, some particular occasion; on certain occasions; when occasion arises.

3. Now and then, at times, sometimes.

"Only" is used as a conjunctive adverb. It is defined in the Oxford English Dictionary as meaning:

1. The only thing to be added being; with this restriction, drawback or exception only; but; on the other hand, on the contrary,

2. Except. Only for, except for, but for, were it not for.

Thus subparagraph (vi) may be shortened and paraphrased to read:

(vi) throughout which the person was not employed or was but at times employed in Canada.

[10] The tables quoted refer to games. However both Appellants described a NHL player's routine in far more detail. Their descriptions are best summarized by the U.S. Court of Appeals 2^nd Circuit description in Peter Stemkowski v. Commissioner of Inland Revenue, 82 2 U.S.T.C. 85,122 when it stated at 85,123:

An NHL player's year is divided into four periods: (1) training camp, including exhibition games, beginning in September and lasting approximately thirty days; (2) the "league championship" or regular season of games beginning in October and lasting until April of the following year; (3) the play-off competition, which ends in May; and (4) the off-season, which runs from the end of the regular season for clubs that do not make the play-offs, or from a club's last play-off game, to the first day of training camp.

Furthermore, their contracts specify that a player must report to training camp in good condition and, in the later years of each Appellant, the coaches specified a playing weight. Thus, they had to work out and stay in condition during the off season. They both did. Mr. Nanne stated that he only took about 10 days per year off of his conditioning regime and that after he retired from the NHL he didn't ever run again. Both Appellants are believed completely. They were fair and frank in all of their testimony. Mr. Mikita described a similar conditioning routine to Mr. Nanne's. Each of their contracts also had "promotions" and good behaviour clauses of duties to which they adhered. On this basis the Court finds that they carried out the duties of their respective employment for 365 days each year less a short holiday period of less than a month each.

[11] The days tabled in the Agreed Statements of Fact as played in Canada refer to days each team played. Mr. Mikita only played three games in his first season and none of them were played in Canada. In his last season he suffered constant injuries and only played in about 20 games.

[12] During the season they each played or worked out seven days a week, on the instructions of their coaches. They also did personal appearances as instructed. Thus, allowing for occasional days off during the off season they each carried out their duties of employment for about 300 of each 365 day year when they were under contracts for a full season. As a result, each table overstates the number of "Games in Canada" each Appellant played and that number should be measured against a total of about 300 days each year when the Appellants were carrying out their duties of employment. Moreover, even the estimate of 300 days per year is low when it is considered that their NHL teams "owned" Mr. Nanne and Mr. Mikita and could "trade" them any time. In light of this, by any other standard of employment, these men were employed by their teams for 365 days per year in which they were "owned".

[13] Because road games were scheduled so that the teams arrived at their Canadian destinations the night before the game and, commonly, left right after their games in Canada, they seldom spent more than 24 hours in Canada when they played there. If they did spend more time when they slept over after a game, the total time in Canada for a game was still less than 36 hours. On this basis Mr. Nanne played a maximum of 12 games in Canada in the 1970-71 season for about 24 hours in Canada for each season game. His playoff games were in Montreal which may have allowed a second night in Montreal for a total of 36 hours for each play-off game. Mr. Mikita's maximum possible games played in Canada were 20 in 1961-62 when he played 6 post-season play-off games in Canada. His hours in Canada per game were the same as Mr. Nanne's. These were out of 300 duty days per year. Both men admitted frankly in cross-examination that their scheduled seasons were prearranged, preplanned and prescheduled. During each season they always knew when and where the team would be playing and they regularly came to Canada to play their schedules. It is noted that a "season" does not constitute a taxation year.

[14] By comparison, Mr. Nanne's team played a minimum of six regular season games in Canada in his first two seasons. Mr. Mikita's team played a minimum of seven regular season games in Canada from 1973 through 1979. From 1976 through 1980 they had no play-off games in Canada. Thus, respectively, their teams each spent about six and seven days in Canada in each of the seasons relating to those years. Certainly, these lower numbers in relation to season days or to employment duty days constitute very few and, on a frequency basis, "occasional" days. Therefore, during those seasons they were only occasionally employed in Canada.

[15] Playoffs are not scheduled. Even for players like the Appellants, who had exceptionally long professional sports careers, playoffs occur by chance. Making playoffs depends on coaches, other players, a lack of serious injuries and other teams' successes or failures. At times the Appellants made the playoffs, but at other times they didn't, despite their plans, skills and hard work. Mr. Nanne's team only played three playoff games in Canada (in 1971) in his whole career. Mr. Mikita's team was in playoff games in Canada in 10 of his 20 years in the NHL

[16] 212(1)(h) refers to a pension benefit attributable to services rendered in taxation years (in the plural) during which the person was never resident in Canada for even the shortest period of time according to (v). (vi) goes to the other end of the time spectrum: throughout the taxation years in which the person rendered services, he was only occasionally employed in Canada. Thus, the ratio must be based on the total number of taxation years in which the Appellants' services were rendered, and not each separate year. That is because the pension is based on the total years of service. Then the question is: for those years taken as a whole, was each Appellant only occasionally employed in Canada?

[17] Mr. Mikita was employed by the Chicago Black Hawks for 22 years. (Facts, Para. 1) He rendered services to the team for 300 days each year or for 6,600 days. The team played 264 games in Canada in those seasons. Mr. Mikita played fewer games in Canada than that in those taxation years. But that can be taken as the number of days that he was employed in Canada. That is 4% of his total number of days employed by the Chicago Black Hawks.

[18] Mr. Nanne was employed by the Minnesota North Stars for 10 years. (Facts, Para. 1) He rendered services to the team for 300 days each year or for 3,000 days. The team played 65 games in Canada in those seasons. Mr. Nanne did not testify that he missed games due to injuries in those taxation years. So it can be calculated, roughly, that he was employed in Canada for 62 days, plus 3 x 1½ days or a total of 66 ½ days in Canada in those taxation years. That is just over 2% of his total number of days employed by the Minnesota North Stars.

[19] The numbers recited are rough because the Appellants don't remember the games that they did or did not play in Canada during their careers. In the end they come down to this:

(1) In 10 years in the NHL, Mr. Nanne was employed an average of 6.6 days of time in Canada per year.

(2) In 22 years in the NHL, Mr. Mikita was employed an average of 12 days of time in Canada per year.

Moreover, this happened sporadically and, in playoffs, by chance.

[20] Those numbers of days in a year, which merely occurred from time to time, represent occasional employment.

[21] The appeals are allowed and these assessments are referred to the Minister of National Revenue for reconsideration and reassessment accordingly.

[22] The parties' counsel asked to speak to costs once the reasons for judgment were completed. The Registrar will arrange for a telephone conference call for arguments respecting costs to occur within 30 days from this date.

Signed at Vancouver, British Columbia this 10^th day of December 1999.

"D.W. Beaubier"

J.T.C.C.