Wolf Bergelt v. Minister of National Revenue, [1984] CTC 2033, 84 DTC 1042

Tremblay, TCJ:—This case was heard in Vancouver, British Columbia, on May 11, 1983.

1. The Point at Issue

The point at issue is whether the appellant is correct in contending that from September 1, 1980 to April 1981 he was not a resident of Canada because he was hired by Daon Corporation as group controller and worked in Newport Beach, California. As a condition of employment, the employer agreed to lend $50,000 (US funds) to enable the appellant to purchase a home in southern California.

The respondent’s contention is that the appellant during the said period was a resident of Canada. The main reason is that the appellant’s family remained in Canada, and the appellant did not have a working permit from the Government of the United States.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results particularly from several judicial decisions including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessment, or reassessment, are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

4. In reassessing the Appellant on the basis that he was resident in Canada during all of 1980, the Respondent assumed, inter alia, that:

(a) the Appellant was resident in Canada during all of the year 1980, and more particularly from September 15, 1980 through April 1981;

(b) during the period from September to December 1980:

(i) the appellant maintained a Canadian Medical Coverage;

(ii) the Appellant’s spouse received Canadian Family Allowance payments;

(iii) the Appellant retained a Canadian bank account; and

(iv) the Appellant’s spouse and family remained in Canada;

(c) the Appellant was throughout the time in question paid by Daon Development Corporation, the Canadian parent, as he did not have a work permit from the Government of the United States;

(d) the Appellant did not, from September 1980 to April 1981, dispose of the family home in West Vancouver, British Columbia.

3. The Facts

3.01 After completing his studies, the appellant received his CA degree in 1969. He worked for a local firm of chartered accountants. He was then 25 years old.

3.02 In 1980, the appellant was hired by Daon Development Corporation, a public Canadian company, as controller and vice-president of that company.

3.03 In August 1980, indeed the appellant was asked to become group controller for Daon Corporation, a company incorporated in 1976 under the laws of the State of Delaware, USA, and a wholly-owned subsidiary of Daon Development Corporation. In 1980, it had assets of approximately one billion dollars.

3.04 On September 10, 1980, Mr R J Langrish, RIA, vice-president and senior controller of Daon Development Corporation wrote a letter to the appellant confirming his new function and outlining the terms of employment. This letter was filed as Exhbit A-1 which reads as follows:

Dear Wolf:

I am delighted that you have accepted the position of Group Controller for Daon Corporation. As agreed in our earlier discussions the following outlines the terms of your employment:

1. Annual salary of $ (US).

2. Monthly car allowance of $300.00 (US).

3. The position will be bonusable commencing the year beginning January 1, 1981. The extent of the bonus will be a product of both your personal performance and that of the Company as a whole.

4. The Company will extend a non-interest bearing loan to you to a maximum of $50,000.00 (US) to enable you to purchase a house in Newport Beach. The repayment terms and security will be finalized closer to the date of your requiring the funds.

5. You will be entitled to receive all the corporate benefits currently applicable to employees of Daon Corporation.

6. The Company will reimburse you for all reasonable expenses of moving to Newport Beach.

7. You will be entitled to periodic trips back to Vancouver at the Company’s expense until your family has joined you on a permanent basis.

It was also agreed that you and Jim Findlay would make all the necessary arrangements to satisfy the immigration authorities, and that, until they were completed, you would be paid by Daon Development Corporation.

In conclusion, I would like to reiterate how pleased I am that the relationship commenced by your involvement with Daon through Arthur Andersen is going to continue with your decision to join our Company. I look forward to your contribution to Daon’s continued success.

3.05 The appellant became controller of Daon Corporation on September 15, 1980.

3.06 Prior to acquiring a residence in southern California, the appellant closed all of his Canadian bank accounts except one. This was the bank account used to pay the ordinary expenses of his family living in Vancouver prior to joining him in California.

3.06.1 This bank account was also used to pay the repairs of his home in Vancouver. He had bought this home in 1970. In 1979, it needed major renovations. After a plan of renovations was made by an architect, the renovations started in June of 1980. In September, when the appellant left for California they were not yet completed. In fact, they were completed only at the end of December, 1980.

3.06.2 In September 1980, Mr Stearn Bennett, real estate agent then working for A E Lepage at the West Vancouver Branch, counselled the appellant not to try to sell the home before the completion of the renovations. Mr Bennett indeed testified that he made that recommendation “from the point of view of the salability of the property and getting a proper price for it”. . . unless they have some preconceived judgment as to its finished (. . .) the majority of spec builders refuse to put a house on the market until the work is done . . .” (SN p 69). In effect, it is very difficult to sell a house when it is half remodelled. Therefore, the appellant’s house was never listed for sale in 1980.

3.07 In September 1980, the appellant moved his clothing and personal effects, including his automobile, to Newport Beach. He found a furnished one bedroom apartment. He did not want to buy a new home in the USA before the completion of renovations on his home in Canada and, if possible, before selling it. His family had to stay in Canada.

3.07.1 The appellant gave up his membership in the Vancouver Board of Trade, the Institute of Chartered Accountants, and as resident member of the Royal Vancouver Yacht Club. Filed as Exhibit A-2 was a list of the non-resident members of the Royal Yacht Club 1981, on which one can see the appellant’s name.

3.07.2 In California, he joined an athletics club, a university club in Newport Beach.

3.08 A working permit was required from the Government of the United States. In the meantime, however, the appellant was paid by the Canadian parent as it appears from the terms of employment (Exhibit A-l, paragraph 9), as quoted in paragraph 3.04. The pay cheque was deposited in the appellant’s bank account. In consequence of this, and of the fact that his family (wife and two children) had to remain in Canada, he maintained medical coverage in Canada and Canadian tax deductions at source was made. Also, his wife received Canadian family allowance payments.

3.09 In December 1980, the appellant was officially advised that he would not be able to continue as controller of Daon Corporation because he was required to serve as controller of Daon Development Corporation in Vancouver. He was advised that after completing his work for Daon Corporation in California, he would be moved from Newport Beach to Vancouver. In April 1981, the appellant gave up his residence in Santa Ana, California, and moved to Vancouver, British Columbia. This change followed a reorganization of the Canadian company. Mr Raymond John Langrish, former vice-president and senior controller of the Canadian company gave lengthy testimony with respect to the reasons for the reorganization and the return of the appellant to Vancouver. Mr Langrish had been working for the company for 13 years. He left it in June 1981, when despite the very good former years, (total assets in 1970, $6 million; in 1981, $2.2 billion; 10 employees in 1969, 900 in 1981) it had cash problems because of the general economic situation.

3.10 Mr Langrish was responsible in 1980 for the hiring of the appellant. He explained that from “early spring of 1980 through to the summer of 1980, we were looking for what we described as a group controller’’ (SN p 78). After interviewing nine candidates, he met the appellant in July. In August 1980, he made the actual proposal to the appellant. “. . . he was in . . . a kind of a bit of a shock and I think when we started talking, that he was ontemplating a . . . Canadian position’’. (SN p 79). Mr Langrish is the author of Exhibit A-l. He confirmed all the conditions contained therein.

3.11 When the appellant was informed at the end of November 1980 that he probably would have to come back to Vancouver, he was not happy. “. . . I think he had got used to the California lifestyle and I know that he had mentioned that his wife was looking forward to finally locating in the US’’.

3.12 Three times in the fall, he visited his family in Vancouver. However, each time it was for specific business reasons: to discuss the Miami project ($150 million), to discuss the reorganization in California and to discuss the problems with the Audit Committee of Daon Corporation.

3.13 In the second part of November, his wife visited him in California. It was at that time he first heard from Mr Langrish that he would probably have to go back to Canada.

3.14 During the fall, he spent four weekends looking, throughout southern California, mainly in Laguna Beach, Laguna Hill, Irvine, Tustin and Costa Mesa, for a home. He selected some houses for a possible purchase. When his wife came to California in November, it was above all to select the house to be purchased.

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act involved in the present case are sections 2, 3 and 126. They shall be quoted in the analysis, if necessary.

4.02. Cases at Law

The counsel for both parties referred the Court to the following cases at law:

1. The Queen v Robert Maurice Sherwood, [1978] CTC 713; 78 DTC 6470;

2. Henderson v Nuncey, [1954] 4 DLR 760;

3. Percy Walker Thomson v MNR, [1946] CTC 51; 2 DTC 812;

4. The Queen v Kenneth F Reeder, [1975] CTC 256; 75 DTC 5160;

5. Edwin L Schujahn v MNR, [1962] CTC 364; 62 DTC 1225;

6. Guy Rajotte v MNR, [1979] CTC 2555; 79 DTC 436;

7. No 416 v MNR, [1957] Tax ABC 94; 57 DTC 230;

8. Kurt Erickson v MNR, [1980] CTC 2117; 80 DTC 1118;

9. Istvan Kallos v MNR, [1972] CTC 2100; 72 DTC 1099;

10. Thomas C Saunders v MNR, [1980] CTC 2436; 80 DTC 1392;

11. Rémi Bouchard v MNR, [1978] CTC 2071; 78 DTC 1074;

12. William R Morton v MNR, [1976] CTC 2463; 76 DTC 1275.

4.03. Analysis

4.03.1 The basic contention of the respondent’s counsel was that the intention is irrelevant in determining the residence. From the middle of September to December 1980 . . what was present at that point in time was his job commit ment (. . .), his physical presence in California and his intention to stay, his intention to move his family, his intention to sell his house, his intention to buy a house . . .”. In December 1980, “. . . all that changed was the intention. His family was still in Canada, he still had a bank account, he still was paying CPP and UIC. He still had his furnished apartment in California with merely his sports equipment and his clothing and a radio and tapes, very small personal effects. He was still there under the same circumstances in terms of residency (. . .) the suggestion that the duration depends on the intention goes to the heart of the issue. The issue is not intention, the issue is the facts that are present or not present . . .”.

The learned counsel referred to the Canada Tax Service, page 2-106 to the paragraph entitled “Intention Not Test”:

Intention Not Test

From the foregoing it will be seen that residence is almost always a question of fact. It is not, as in the law of domicile, the place of a person’s origin or the place to which he intends to return. Change of domicile depends upon the will of the individual. Change of residence can depend on the facts apart from his will or desires. This is clearly expressed by Fisher, J A, in Henderson v Nuncey (1954), 4 DLR 760:

It must be noted that the acquisition of a domicile of choice is a question of fact, as the two elements making up domicile of choice, namely, residence and intention, are both matters of fact, the one a physical fact and the other a mental fact.

The contrast between this statement and the remarks in the Levene case, 13 TC 496, is marked:

No legislation ever intended the liability to bear the burden of tax properly attributable to residence to depend upon the volition of the person to be taxed.

The fact of intention or free choice which is an essential element in domicile is entirely absent in residence.

She also referred to the Sherwood, (supra), case, to the Reeder, (supra), case and to the Morton, (supra), case, where it is explicitly explained that there is a difference between a change of domicile and a change of residence. The latter is determined by facts ordinarily external to the will of an individual, the former depends upon his will.

4.03.2 This does not mean, however, that the intention cannot be considered. Mr Justice Rand, in the Thomson case, (supra), explained how hard it is to define the terms “resident” and “ordinarily resident” said:

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 the question of its application.

And at 225 he adds:

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 circumstances but also accompanied by a sense of transitoriness and of return.

In the Kallos, (supra), case, intention was explicitly considered. In the Canadian Tax Reporter at 2045, one can read:

However, although the individual’s motives and intentions are relevant factors in determining residence they are not essential or conclusive.

In the Bouchard case, (supra), the undersigned, referred to nineteen cases which brought out a certain number of principles and factors which read as follows:

Principles

(1) Residence is neither domicile nor citizenship;

(2) a person may even have two places of residence.

Factors

(1) The taxpayer’s background: his native country, his general life-style, his habits;

(2) the links that a person preserves with the country in question, such as: immovable properties (number and value, manner of use), family home, vacation site, storage of furniture, bank account, membership in a religious group, social club or professional organization;

(3) the presence of the husband or of the family and the husband in a given location in the course of the year in question;

(4) nere intention to return to the country does not necessarily settle the matter of residence, even though it may be essential in determining domicile;

(5) the motives or reasons offered to explain absence from or presence in a given (location) during a taxation year;

(6) the fact of travelling as a tourist or always remaining in a given location;

(7) the length of time spent in a given place during the taxation year in question and previous years;

(8) the regularity with which the taxpayer returns to his native country.

4.03.3 Among all the facts adduced in the evidence in a case of this nature, one must distinguish between the factors which are significant to the substance and those which are only incidentals. Indeed it is a challenge in each case as underlined by Mr Justice Rand in the Thomson case, (supra), as quoted above.

In the instant case, it is the Court’s opinion that the most significant fact is the one on which, the appellant’s decision to leave Canada was based, his acceptation for the position of a group controller for Daon Corporation, a USA company, (paras 3.04 and 3.05) and his move to Newport Beach, California in the middle of September 1980 (para 3.07). It was then a permanent job. The acquisition of a new home in California was even provided in the convention A-l to confirm this permanency, the appellant gave up his membership to certain Canadian associations (para 3.07.1) and became member of a USA association (para 3.07.2).

4.03.4 There are numerous other factors involved in this case. The most important one is the fact that the appellant’s family remained in Canada. The appellant’s contention, is that his wife remained in Canada for the repairs of the family home and to insure the sale of the house.

In the Schujahn case, (supra), Mr Justice Noël considered the same facts:

In the present instance we are dealing with the case of a man whose original residence was in the United States; he was sent to Canada to take charge of a new operation for his company and once the Canadian company was properly set up and running smoothly, he was called back to the parent company to take over new responsibilities and there and then, but for the sale of his house in Toronto, severed himself entirely from Canada.

From the evidence, I am satisfied that the only reason why the appellant’s wife and son remained in Toronto until February 1958 was for the sole purpose of insuring the sale of the house and that the retaining of two bank accounts, one for the mortgage payments and the other for his wife’s household expenses, as well as the use of one of his two cars by his wife, was a logical consequence of the necessary means taken by him to sell his house in Toronto.

Also as in the present case, Mr Justice Noël considered the facts that the taxpayer visited his family in Toronto three times:

The three visits made by the appellant during the period under review were, as far as the Christmas visit is concerned, of such a singular occurrence and as far as the stopovers, of such a transitory and incidental nature, that I fail to see how this could be construed as implying residence in Canada. I would see here the simple gesture of a husband who has changed residence but visits with his family when going through the city where they had to temporarily live.

The circumstances of the present case are somewhat similar to an English decision in re Rex v Aldrington, Houghton, and Hove Income Tax Commissioners, (1916), Law Journal, p 1753. The applicant in this case was the owner of a freehold of No 4 King’s Gardens, Hove, and had in fact resided there until 1907. After that year he had removed to Berkshire; but from 1907 to 1911 he had been regularly assessed to income tax under Schedule (A) as owner, as well as to inhabited-house duty as occupier; the house was fully furnished and ready for residence; application for returns of income tax were regularly addressed to the applicant at the address, including the year 1911, and returned duly filled up; in 1913, in making certain affidavits relating to the estate of his deceased wife, the applicant had described himself as of No 4 King’s Gardens, Hove. In reply, the applicant stated that he never lived at Hove since 1907, and had in that year instructed local agents to sell or let the house furnished, and that the documents referred to in 1913 were filled in by his solicitors. Lord Reading, at p 1755, in his decision states:

Upon the evidence I am, however, convinced of the truth of the explanation of the use by the applicant of the address in question, and am satisfied he has not resided there since 1907.

I do feel that the situation here is somewhat similar to the above case and I am convinced of the truth of the reasons why the appellant’s wife and son remained in Toronto after the appellant had himself definitely taken residence in Minneapolis, USA.

Upon the evidence, the Court in the instant case is also convinced of the truth of the appellant’s explanation concerning the three visits (para 3.12). They must be considered only as incidentals.

4.03.5 The other facts: bank account (para 3.06), he was paid by his former employer, the Canadian company, (paras 3.04, Exhibit A-l and 3.08) and the medical coverage (para 3.08) are in my opinion also only incidentals in regards to the main facts of the appellant’s change of function and therefore resulted in a change of residence.

4.03.6 The fact that in the middle of December 1980, it was decided, (because of the reorganization of the Canadian company and the economical circumstances) that the appellant would come back to Canada does not change the substantive fact of the acceptation of his function in the USA.

4.03.7 The Court states that the incidentals are very numerous. However, in a case of this nature the factors that must be taken into account are those which are the most significant to the substance.

The preponderance of the evidence favours the appellant’s thesis.

5. Conclusion

The appeal is allowed and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed.