Nonis – Tax Court of Canada finds that a U.S. resident avoided Canadian tax on employment income from a Canadian employer when he ceased performing active duties

The taxpayer, Mr. Nonis, who was a U.S. resident, had been employed as the general manager of the Toronto Maple Leafs pursuant to an employment contract entered into in 2013. For his 2013 and 2014 taxation years, Mr. Nonis included in his Canadian returns a pro-rated portion of his employment remuneration based on the number of days spent in Canada performing services to earn such income, and this was accepted by CRA. On April 12, 2015, his employer notified him that no further active services were required of him in order to fulfill his contract, and Mr. Nonis returned permanently to the U.S. However, under his contract, he continued to be entitled to remuneration for a number of years thereafter. In filing his returns for 2015 and 2016, Mr. Nonis used the same proration formula based on his days of service in Canada: 37 days for 2015; and zero days for 2016. The Minister reassessed Mr. Nonis on the basis of using the days of service that had been accepted for 2013 and 2014.

After finding that Mr. Nonis continued to be an employee after his “termination” (albeit, with virtually non-existent duties), Bocock applied the principle that, under “paragraph 4(1)(b) of the Act, if a taxpayer works partly in Canada and partly in another country in the same taxation year, the taxpayer’s taxable Canadian income for the year is the amount earned while working physically in Canada” – so that Mr. Nonis’ reporting based on the 37 and 0 days of service in Canada was correct.

The Crown advanced s. 115(2)(c.1). Bocock found that s. 115(2)(c.1)(i) essentially dealt with signing bonuses received by non-residents regarding pending Canadian employment, and that s. 115(2)(c.1)(ii), which refers to “remuneration … for services to be performed in Canada” was there to prevent avoidance “where a signing bonus is represented as something else.”

Mr. Nonis’ appeal was allowed.

Neal Armstrong. Summary of Nonis v. The Queen, 2021 TCC 31 under s. 115(2)(c.1)(ii).