REASONS
FOR JUDGMENT
C. Miller J.
[1]
Mr. Kenny appeals by way of the informal
procedure the confirmation of the assessment by the Minister of National
Revenue (the “Minister”) of Mr. Kenny’s
2014 taxation year. The Minister relied on section 118.94 of the Income Tax
Act (the “Act”) to deny Mr. Kenny, a
resident of Ireland in 2014, entitlement to certain non-refundable tax credits.
[2]
In 2014, Mr. Kenny, both an Irish National and
an Irish resident, worked in Fort McMurray, Canada for a few weeks earning
employment income from Kentz Canada TSS Limited in the amount of $32,728.52.
Other than the few weeks in Canada, Mr. Kenny resided in Ireland, and due to
illness, he received the following payments from the Government of Ireland:
Jobseekers allowance $1,597.02
€
Child
benefit $1,560.00 €
Basic
supplement welfare $8,077.10 €
Rent
supplement $4,384.50 €
Back to school C and F $100.00
€
Overpayment
deduction $40.00 €
Total
amount paid: $15,678.80 €
There was no
disagreement that this converted to $23,002.37 Cdn.
[3]
Mr. Kenny testified that he was not
required to file a return in Ireland reporting these amounts. He acknowledged
that all but the child benefit were social assistance payments provided on a
means-tested basis.
[4]
In filing a Canadian return, Mr. Kenny reported
the employment income but not the Irish Social Assistance payments. He claimed
tax credits for the following:
Basic personal amount $11,138.00
Amount for an eligible dependant $11,138.00
Amount for children born in 1997 or later $2,255.00
CPP or QPP contributions $1,446.00
Employment insurance premiums $613.00
Canada employment amount $1,127.00
Children’s fitness amount $500.00
Children’s arts amount
$500.00
Total $28,717.00
I note that the
eligible dependant involved was Mr. Kenny’s son who was born after 1997.
[5]
The Minister assessed Mr. Kenny reducing the credits
from $28,717 to $2,559, on the basis Mr. Kenny could not claim the credits due
to the application of section 118.94 of the Act, which reads:
Sections 118 to
118.07 and 118.2, subsections 118.3(2) and (3) and sections 118.8 and
118.9 do not apply for the purpose of computing the tax payable under this Part
for a taxation year by an individual who at no time in the year is resident in
Canada unless all or substantially all the individual’s income for the year is
included in computing the individual’s taxable income earned in Canada for the
year.
[6]
To be clear at the outset, I am satisfied the
Canada-Ireland Tax Treaty (the “Treaty”)
does not preclude the Minister from denying these credits as subsection 24(3)
of the Treaty reads:
Nothing contained
in this Article shall be construed as obliging a Contracting State to grant to
a resident of the other Contracting State any exemptions, allowances, reliefs
and reductions for tax purposes which it grants to its own residents.
[7]
Mr. Kenny’s counsel suggested subsection 24(1)
of the Treaty precluded such treatment, as well as precluded the application of
a surplus tax (though this latter item was not raised in Mr. Kenny’s Notice of
Appeal). Subsection 24(1) of the Treaty reads:
Non-Discrimination
1. Nationals
of a Contracting State shall not be subjected in the other Contracting State to
any taxation or any requirement connected therewith, which is other or more
burdensome than the taxation and connected requirements to which nationals of
that other State in the same circumstances are or may be subjected.
[8]
I read this provision as applying to nationals,
not residents, to ensure that a Canadian citizen residing in Ireland and
receiving the same payments (employment from Canada and social assistance from
Ireland) as Mr. Kenny would not be treated any differently. I do not find subsection
24(1) of the Treaty assists Mr. Kenny in this regard.
[9]
Turning then to the crux of the matter, was all
or substantially all of Mr. Kenny’s income for the year included in
computing his taxable income earned in Canada? Mr. Kenny’s counsel argued that
because Mr. Kenny did not have to report the social assistance payments as
income in Ireland, they should not be considered income for purposes of
section 118.94 of the Act. He was unable to provide any authority
for such a proposition.
[10]
In determining whether or not the social
assistance payments constitute income for the purposes of the application of
section 118.94 of the Act, a starting point is section 3 of the Act
which details the rules for determining the income of a taxpayer (the
definition of taxpayer under subsection 248(1) of the Act includes any
person whether or not liable to pay tax). Subsection 3(a) of the Act
reads:
determine the
total of all amounts each of which is the taxpayer’s income for the year (other
than a taxable capital gain from the disposition of a property) from a source
inside or outside Canada, including, without restricting the generality of the
foregoing, the taxpayer’s income for the year from each office, employment,
business and property,
[11]
I then turn to paragraph 56(1)(u) which includes
in income:
a social
assistance payment made on the basis of a means, needs or income test and
received in the year by
(i) the taxpayer,
other than a married taxpayer or a taxpayer who is in a common-law partnership
who resided with the taxpayer’s spouse or common-law partner at the time the
payment was received and whose income for the year is less than the spouse’s or
common-law partner’s income for the year, or
(ii) the
taxpayer’s spouse or common-law partner, if the taxpayer resided with the
spouse or common-law partner at the time the payment was received and if the
spouse’s or common-law partners income for the year is less than the taxpayer’s
income for the year,
except to the
extent that the payment is otherwise required to be included in computing the
income for a taxation year of the taxpayer or the taxpayer’s spouse or
common-law partner;
[12]
I conclude that the payments received by the
taxpayer, Mr. Kenny, from the Irish government, other than the child benefit,
fall squarely into this category as social assistance payments. Had Mr. Kenny
reported the social assistance payments on his Canadian return, he could have relied
on paragraph 110(1)(f) of the Act to deduct them out in computing
taxable income. That provision goes to the determination of taxable income but
does not in any way remove these payments from “income”.
I am unable to find anything in the legislation that provides that these
foreign social assistance payments do not constitute income.
[13]
So, I turn to some of the case law to which
counsel referred me. In the case of Fang v R, which dealt with a foreign
retirement arrangement, I distinguish between a social assistance payment
caught under paragraph 56(1)(u) of the Act and a foreign
retirement arrangement under subparagraph 56.1(i)(c.1). This latter
provision was not raised by Mr. Kenny, but I find it is inapplicable in any
event. The payments described by Mr. Kenny do not reflect a foreign retirement
arrangement but rather reflect means-tested social assistance payments.
[14]
In the case of Luscher v R, Wyman J addressed the
applicability of section 118.94 of the Act as follows:
6. In my
opinion neither position is correct in relation to the determination of the
Appellant’s income for 2008. The Act is divided into several Parts. In this
case Part I is the relevant Part. This Part is divided into various Divisions
including:
Division A –
Liability for Tax (section 2)
Division B –
Computation of Income (sections 3 to 108)
Division C –
Computation of Taxable Income (sections 109 to 114.2)
Division D –
Taxable Income Earned in Canada by Non-Residents (sections 115 to116)
Division E –
Computation of Tax (sections 117 to 127.41)
7. Section
118.94 of the Act requires two calculations – one is the person’s income for
the year and the second is the person’s taxable income earned in Canada for the
year. Once these two amounts are known, it is then necessary to determine whether
all or substantially all of the Appellant’s income for 2008 was included in
computing his taxable income earned in Canada for 2008. To determine this it
will be necessary to determine what amounts are included in the Appellant’s
income for 2008 and also included in computing the Appellant’s taxable income
earned in Canada for 2008.
8. The
first question is, therefore, what is the Appellant’s income for 2008? Since
Division B of the Act addresses the computation of income it would seem to me
that this is the Division that should be reviewed to determine the Appellant’s
income for 2008.
…
10. Section
3 provides the general rules for the determination of income from various
sources, and in particular the general rules related to the amount that is to
be included in income for taxable capital gains and allowable capital losses.
The opening part of section 3 of the Act provides that a person’s income for
the purposes of Part I of the Act is to be determined in accordance with the
rules as set out in this section. Since section 118.94 of the Act is within
Part I of the Act, the rules for determining income, as set out in section 3 of
the Act, apply in determining income for the purposes of section 118.94 of the
Act.
…
12. Therefore,
for the first calculation that is required for the purposes of section 118.94
of the Act, it is necessary to determine the Appellant’s income for 2008, as it
would be determined for the purposes of Part I of the Act, regardless of where
the income was earned. It is clear in paragraph 3(b) of the Act that, with
respect to the dispositions of capital properties, the amount to be included in
income (in relation to the taxable capital gains or allowable capital losses
realized on the dispositions of such capital properties) is the amount, if any,
by which the Appellant’s taxable capital gains realized during the year exceed
his allowable capital losses for the year.
[15]
This is entirely in line with how Mr. Kenny’s
Irish social assistance payments fall into income for purposes of Division B of
the Act.
[16]
Having concluded that the Irish social
assistance payments form part of Mr. Kenny’s income (again, other than the
child benefit) it is then necessary to determine if all or substantially all of
his income was included in computing his taxable income earned in Canada. Subsection
115(1) of the Act sets out a non-resident’s taxable income earned in
Canada. It reads:
115(1)(i) incomes
from the duties of offices and employments performed by the non-resident person
in Canada and, if the person was resident in Canada at the time the person
performed the duties, outside Canada,
[17]
Clearly, Mr. Kenny’s taxable income earned in
Canada is $32,728, yet his overall income is that amount plus the social
assistance payments (less the amount of the child benefit). A rough calculation
suggests the taxable income earned in Canada represents approximately 60% of
Mr. Kenny’s total income. Administratively, the Canada Revenue Agency has used
an arbitrary 90% ratio to determine what is meant by substantially all. In the
case of Watts v R,
Bowman J indicated:
33. There
are many cases in this Court that have considered the meaning of "all or
substantially all". They consistently comment on the elasticity and
ambiguity of the expression and on the inadvisability of using an arbitrary
percentage, such as 90%. For example, Rip J. in McDonald v. The Queen, 98 DTC
2151 stated at p. 2154.
[18]
Indeed, cases have relied on percentages as low
as 76% to be considered substantially all. In Mr. Kenny’s case, I would be
stretching “substantially all” beyond any
measure of elasticity if I concluded that 60% represented “substantially all”. It certainly reflects a majority
but that is not the same as substantially all.
[19]
I conclude Mr. Kenny has been caught by the
application of section 118.94 of the Act and is not entitled to tax
credits beyond what the Minister has allowed. The Appeal is dismissed.
Signed at Ottawa,
Canada, this 2nd day of January 2018.
“Campbell J. Miller”
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