James G. Ferguson v. Minister of National Revenue, [1989] 2 CTC 2387, 89 DTC 634

Sarchuk, T.C.J.:—James G. Ferguson appeals with respect to reassessments of income tax for his 1981, 1982, 1983 and 1984 taxation years. By these reassessments the Minister of National Revenue assessed the tax payable by the appellant for those taxation years, together with interest thereon, on the basis that he was a resident of Canada during each such year. In addition the Minister of National Revenue assessed penalties in respect of the 1983 and 1984 taxation years pursuant to subsection 162(1) of the Income Tax Act (the Act).

The appellant appeals on the basis that he was, throughout the years in question, not resident in Canada. In his notice of appeal exception was also taken to the imposition of interest and penalties and to the respondent's treatment of the appellant's claim for a foreign tax credit. With respect to these matters counsel advised that they were no longer being pursued and that the sole issue to be determined was whether or not the respondent was correct in reassessing on the basis of his assumption that at the relevant times the appellant was resident in Canada.

The appellant, who is now 65 years of age, is a Canadian citizen and at all times prior to October 1980 had lived in Canada. He was then, and is now, married, with no children. He and his wife resided in Hamilton, Ontario, in a house which the appellant owned prior to the marriage and which throughout has been registered in his name.

The appellant had been employed most recently as general supervisor (mechanical) by Comstock International Ltd. (Comstock), a Canadian corporation engaged in the business of electrical and mechanical contracting. In or about September 1980, his position was phased out and since equivalent employment with Comstock was unlikely he began to consider other alternatives.

Discovering that opportunities in his field were scarce in Canada the appellant applied for a position with Santa Fe Corporation of California (Santa Fe) on an overseas project. He submitted a resume and then attended at Santa Fe's offices in Houston, Texas for an interview and a medical examination. He was subsequently offered and accepted a one-year contract with Santa Fe for employment at a refinery in Saudi Arabia, supervising the construction and installation of a new steam boiler. Santa Fe only offered contracts for a one-year term, renewable for successive terms of one year at the instance of both parties. At the time he agreed to the first contract he was advised that it was company policy that new employees initially were "on a 90-day trial period” and that for the first year they were required to live in Saudi Arabia in single status, but that after one year a request could be made for married status, at which time if Saudi Arabia granted the required visa, his wife could join him.

On or about September 26, 1980 the appellant resigned from his employment with Comstock. He ceased to pay O.H.I.P. premiums, unemployment insurance premiums and no longer contributed to the Canada Pension Plan. As well, he terminated payments to the union health insurance plan and to its pension plan. The appellant, however, maintained his membership in Local 67 of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry. With respect to his professional licences he retained his Master Plumber's Licence and his Ontario Driver's Licence, both of which appear to have been required by his new employer. He also retained his Natural Gas Licence, which was not required but which the appellant did not wish to lose.

With respect to the union membership and the Natural Gas Licence, on several occasions the appellant stated that these were retained for use upon his return to Canada. Mr. Ferguson believed that if he stopped paying the union dues it would be practically impossible to get back into the union when he returned to Canada and continued working here. OHIP was unnecessary since the employment contract with Santa Fe provided for full medical coverage including illnesses and accidents as well as some form of injury compensation.

The appellant left for Saudi Arabia on October 5, 1980. His wife remained in Canada, residing in the matrimonial home and continued her employment with Revenue Canada, with whom she had over ten years of credited service. Both the appellant and his wife asserted that she intended to join him in Saudi Arabia when he was able to obtain "married status". Such status depended upon employer approval and was subject to the requirements and limitations imposed by the Saudi Arabian government. According to Mrs. Ferguson her employment would not have interfered with a move to Saudi Arabia, believing that she would have been able to obtain a leave of absence for a period of up to five years with re-employment (albeit not in the same capacity as when she left) guaranteed. She did not directly respond to counsel's suggestion that she would have sacrificed a significant portion of her future pension rights but it is not improper to infer that was the case.

While in Saudi Arabia the appellant at all times lived in barracks located in a special, highly restricted site, set apart from the general populace and enclosed by a wire fence. Had he obtained married status he would have been entitled to live in a small bungalow, but still within a restricted compound. The degree to which his lifestyle was curtailed is evident from the fact that the compound was guarded by the Saudi police; that travel outside of the compound required a special permit; that religious services in the compound were frequently interrupted or stopped by the police and that those recreational and amusement activities which were permitted were limited to the compounds.

Each contract of employment provided for two vacation periods of 16 days. The appellant spent these periods travelling in Europe with his wife and visiting Canada. As well a period of one month (later reduced to 16 days) was available between contracts during which the appellant returned to Canada for varying periods of time. At the end of his first contract in October 1981, his wife had entered a hospital for surgery and he came home for a period of five to six weeks before leaving to commence his second contract.

After completing nine months of his first contract, the appellant was advised by his employer that its requirements for married status had been met and that the appellant's wife could take the necessary steps to obtain the required permits and visa. Before proceeding to do so the appellant spoke to Santa Fe's medical personnel regarding his wife's asthmatic condition and was advised that the high concentration of pollution in the refinery area could have an adverse effect. He was also advised that new married quarters located away from the refinery were to be built in the near future. It was suggested that his wife should remain in Canada until completion of these new facilities. At some point of time during the course of his second contract all married status positions were cancelled by the Saudi Arabian Government. Concurrently the appellant was advised that his employer "was bought out by the Kuwait Petroleum Organization" and that it was henceforth his employer.

Notwithstanding the failure to obtain married status the appellant agreed to two further one-year contracts of employment in Saudi Arabia. He stated that he was not committed to resuming life in Canada and that there were financial benefits which would accrue to him by way of a pension from the Saudi Arabian government if he were to work in Saudi Arabia for ten years. He says that he decided that if he could he would remain there until he was ready to retire. It was clear that once his contract had been completed or if he retired he would not be allowed to stay in Saudi Arabia. After the third year when the boiler project was completed, Mr. Ferguson was offered a job with another subsidiary of the Kuwait Petroleum Organization working in the desert on pipelines and natural gas plants which he did not immediately accept. He said that he did not know what he would do and after obtaining the necessary exit and entry visas, returned to Canada where he learned from his union that employment was scarce and that there were approx- imately 600 tradesmen out of work. As a result he returned to Saudi Arabia for a fourth one-year contract.

On January 10, 1985 he completed this contract and returned to Canada. There was some evidence of an offer of employment in Africa with a Swiss corporation. If I understood the appellant this occurred following the completion of the second contract. The appellant rejected the offer because his wife was ill. He testified that after the fourth contract there were discussions with the same offeror with respect to employment, however from Mr. Ferguson's testimony it is difficult to be certain as to whether this employment was outside of Canada or in Montreal, where apparently the Swiss corporation had opened an office.

The appellant did not have any employment or carry on any business in Canada during the four years in issue and earned no income in Canada other than interest and dividend income from some Canadian investments and from bank accounts. During the course of his employment in Saudi Arabia he did not contribute any money to his wife's maintenance or support. The appellant's house in Hamilton was fully paid for and in his absence she paid the utilities and taxes. She testified that this did not represent any substantial change since, throughout all of the years of their marriage she had been employed and fully self-supporting.

The appellant had maintained joint bank accounts with his wife at the Royal Bank and the Ontario Provincial Bank. Prior to leaving Canada he closed the Royal Bank account and transferred the moneys to the Ontario Provincial Bank. Throughout the period of his employment in Saudi Arabia his salary was deposited into an account established at the Midland Marine Bank in Niagara Falls, New York. This account, like all others that he had, was a joint account, although Mrs. Ferguson did not at any time either deposit or withdraw funds from it. The reason for the establishment of this account was unclear but appears to have resulted from the fact that a branch of that bank was readily available in Saudi Arabia and that its use was suggested by the appellant's employer. While the appellant was employed in Saudi Arabia certain amounts were deducted at source from his salary and remitted to the Saudi Arabian Government. The money so withheld amounted to $1,392.30, $2,066.40, $2,219.38 and $2,404.61 in the respective taxation years.

It is the appellant's position that he is not liable for Canadian income tax on his employment income for the taxation years in issue since he was not a resident of Canada at any time during this period. His only significant connection with Canada was his wife’s continuing residence in Hamilton and special reasons existed to justify her remaining in Canada. The appellant asserts that he had otherwise severed all ties, both business and social with Canada on or about October 5, 1980.

The term "resident" is not defined in the Income Tax Act and "resident" and “ordinarily resident" are to be given ordinary everyday meaning, the meaning ascribed to them by common usage. In this context, useful reference can be made to the comments of Mr. Justice Rand in Thomson v. M.N.R., [1946] S.C.R. 209; [1946] C.T.C. 51; 2 D.T.C. 812 at pages 63-4 (D.T.C. 815-16) (S.C.C.):

The gradation of degrees of time, object, intention, continuity and other relevant circumstances, shows, I think, that in common parlance "residing" is not a term of invariable elements, all of which must be satisfied in each instance. It is quite impossible to give it a precise and inclusive definition. It is highly flexible, and its many shades of meaning vary not only in the contexts of different matters, but also in different aspects of the same matter. In one case it is satisfied by certain elements, in another by others, some common, some new.

The expression ''ordinarily resident" carries a restricted signification, and although the first impression seems to be that of preponderance in time, the decisions on the English Act reject that view. It is held to mean residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence. The general mode of life is, therefore, relevant to a question of its application.

For the purposes of income tax legislation, it must be assumed that every person has at all times a residence. It is not necessary to this that he should have a home or a particular place of abode or even a shelter. He may sleep in the open. It is important only to ascertain the spatial bounds within which he spends his life or to which his ordered or customary living is related. Ordinary residence can best be appreciated by considering its antithesis, occasional or casual or deviatory residence. The latter would seem clearly to be not only temporary in time and exceptional in circumstance, but also accompanied by a sense of transitoriness and of return. [Emphasis added]

But in the different situation of so-called "permanent residence”, "temporary residence", “ordinary residence”, principal residence” and the like, the adjectives do not affect the fact that there is in all cases residence; and that quality is chiefly a matter of the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living with its accessories in social relations, interests and conveniences at or in the place in question. It may be limited in time from the outset, or it may be indefinite, or so far as it is thought of, unlimited.

[Emphasis added]

It is also well established that residence is a question of fact and that each case must be decided primarily on the basis of its own particular facts; Beament v. M.N.R., [1952] 2 S.C.R. 486; [1952] C.T.C 327; 52 D.T.C. 1183, at page 329 (D.T.C. 1184) (S.C.C.).

A vast array of judicial pronouncements on the meaning of "resident" exists. Counsel for the appellant referred to some 26 such decisions which he grouped, to the extent that it was possible, on the basis that they shared similar fact patterns. The rationale behind this exercise was to demonstrate that the appellant's situation was different than each of the categories or groups so found.

Counsel referred to the "sabbatical or research" cases in which the common factor was that a taxpayer, normally a professional or a professor had left Canada to pursue research or to teach. He distinguishes this group of cases on the basis that the appellant left Canada for an indefinite period of time with no clear idea at the outset when or whether he would return and that he was absent from Canada for the greater part of four years rather than one year as was usually the case in the "sabbatical/research" category. He further submitted that unlike the "sabbatical" cases it was not a condition of his employment in Saudi Arabia that he return to Canada between contracts.

The second was a group of cases in which a taxpayer's absence from Canada was from the outset for a predetermined period of time, generally for one year, but in which the reason for the absence was related to the taxpayer's employment. Counsel sought to distinguish the appellant’s position for the same factual reasons asserted in the sabbatical cases, adding thereto that the appellant initially believed that his wife would join him in Saudi Arabia; that he was employed by a non-Canadian employer and that his salary was deposited in an account with a United States bank outside Canada.

The third and fourth categories referred to by counsel for the appellant concerned the status of taxpayers employed in some capacity on a ship of non-Canadian registry but who maintained some form of dwelling in Canada, and of those taxpayers who, in effect, had two residences, one in Canada and one outside of Canada, and whose "customary mode of life" was such that both residences were occupied by the taxpayer on a regular and continuous basis for a substantial portion of each taxation year.

Counsel also referred to another series of cases including Schujahn v. M.N.R., [1962] Ex. C.R. 328; [1962] C.T.C. 364; 62 D.T.C. 1225 (Ex. Ct.), Kallos v. M.N.R., [1972] C.T.C. 2100; 72 D.T.C. 1099, Erikson v. The Queen, [1975] C.T.C. 624; 75 D.T.C. 5429, York v. M.N.R., [1980] C.T.C. 2845; 80 D.T.C. 1749, in which the “residence” of a taxpayer who was formerly a resident of Canada, but who has left Canada save for an occasional return for brief visits was considered. He submitted that these decisions support the proposition that return visits to Canada will not be regarded as sufficient to constitute the taxpayer continuing residence in Canada where such visits are brief; of a transitory nature, special reasons exist for the taxpayer making them and that in all other respects the taxpayer has otherwise severed all ties both economic and social with Canada. He argued that these cases also support the proposition that a married taxpayer may be regarded as having ceased to be a resident of Canada even though the taxpayer's spouse remains a resident where special reasons exist for the spouse remaining in Canada.

While the proposition put forward by counsel for the appellant is not per se unreasonable, a review of the facts in those cases demonstrates the difficulty in applying it in the present appeal. In Schujahn, supra, the taxpayer, an American citizen, had been transferred from the United States to Toronto to take charge of the operations of a Canadian subsidiary. He and his family moved to Toronto, purchased a house and lived there for the next three years. In 1957 he was recalled and returned to the parent company in the United States. His wife and son remained in Toronto until the house was sold in February of 1958. The issue was whether the taxpayer had ceased to be a resident of Canada on August 2, 1957. While his family remained in Toronto he visited them on occasion. In the circumstances, given the demonstrated intention of the family to return to the United States the stopovers could clearly be considered, as they were by the presiding judge, as being of such a transitory and incidental nature that they could not be construed as implying residence in Canada. That situation is not at all analogous with this appellant's.

In Erikson, supra, the taxpayer who was divorced returned to Canada periodically to spend time with his children. The Court concluded at page 630 (D.T.C. 5433) that:

. . .the time spent in this country was not truly part of an ordered, customary or general mode of life. The plaintiff had, to my mind, effectively severed his Canadian residential ties with one qualification. His children still resided in this country in the custody of their mother. That was the magnet drawing him back during school vacation.

I do not propose to specifically refer to any of the other cases cited. Suffice it to say that, as counsel for the appellant noted, the appellant's situation is not akin to that of the professor on sabbatical, nor that of a sailor employed on a ship of foreign registry. However, the fact that the appellant does not fall into any of the categories so assiduously constructed by his counsel provides precious little assistance to the Court. The issue before me must still be determined on its own facts.

I am not satisfied that the appellant in mind or in fact settled into or maintained his ordinary mode of living with its accessories and social relations, interest and conveniences in Saudi Arabia. As Mr. Justice Rand noted, ordinary residence can best be appreciated by considering its antithesis, occasional or casual or deviatory residence. I am satisfied that Mr. Ferguson's sojourn in Saudi Arabia was temporary in time, exceptional in circumstances and was accompanied by a sense of transitoriness and of return. That is established by a number of facts. At all relevant times he maintained his house in Hamilton, title to which was registered in his name. The so-called rental arrangements which he asserts were contemplated in the event his wife was able to accompany him to Saudi Arabia clearly indicate an intention to return. I do not accept that the appellant did not have a sense of when or whether he would return to Canada. Even before the end of the first year, it was clear that his wife would have difficulty in Saudi Arabia due to her health, I note in this context that her medical problem was a chronic condition of which the appellant was well aware. Well before the end of the second year he was aware that he would not be able to bring her even if health permitted. Before undertaking his third and fourth contracts inquiries were made by him through his union as to the availability of employment in Canada. To this end he continued to pay his basic union dues and maintained licences necessary both for his continued employment in Saudi Arabia and for his resumption of employment in Canada. The deposit of salary other than that portion needed to cover living expenses in Saudi Arabia to a bank in Niagara Falls, New York strikes me as both irrelevant and meaningless other than to create a facade of non residence. I am also not entirely satisfied that Mrs. Ferguson was as prepared to abandon her employment in Canada, with all the attendant losses (e.g. income and pension rights) to live in Saudi Arabia for ten years as was suggested.

The appellant has failed, in my view, to establish that Saudi Arabia was his settled or usual abode. His failure to sever his ties to Canada to a great extent negates his assertions that he had taken up residence in Saudi Arabia. If categorization is required I would find that Mr. Ferguson sojourned in Saudi Arabia, the word “sojourn” being defined by the Shorter Oxford English Dictionary as: "to make a temporary stay in a place; to remain or reside for a time.”

The appeals are dismissed.

Appeals dismissed.