Roy Jorgenson Associates of Canada Limited v. Minister of National Revenue, [1980] CTC 2394, 80 DTC 1344

The Chairman:—The appeal of Roy Jorgenson Associates of Canada Limited, is from an assessment in respect of the 1974 and 1975 taxation years, during with the appellant sought to deduct amounts of $21,654.78 and $14,729.17 respectively as small business deductions pursuant to subsection 125(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The respondent disallowed the deductions on the ground that the appellant was not, in the pertinent taxation years, a Canadian-controlled private corporation within the definition of paragraph 125(6)(a) and paragraph 257(2)(a) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Background

Mr George O Grant, a professional engineer, president and director of the appellant corporation since 1968, testified that the appellant (hereinafter referred to as “Jorgenson Canada”), incorporated under the Laws of Canada, was engaged in the business of “engineering-oriented” management throughout Canada and abroad and whose clients were usually Government departments or agencies. The appellant’s staff was made up principally of accountants and professional engineers.

Prior to 1973, all of the shares of Jorgenson Canada were owned by its parent company, Roy Jorgenson Associates Inc, a non-resident corporation (hereinafter referred to as “Jorgenson US”). Some of the employees of Jorgenson Canada, owned shares in Jorgenson US.

In 1973, an agreement was entered into between Jorgenson US and its Canadian shareholders, employees of Jorgenson Canada, by which the shares held by Canadians in Jorgensons US, were sold or exchanged for shares in Jorgenson Canada. (Exhibit A-1)

The reasons behind the said sale or exchange of shares, was to make of Jorgenson Canada a Canadian-controlled private corporation, so as to qualify for the small business deduction of subsection 125(1) of the Income Tax Act and to become more readily considered for contracts with the Government of Canada.

Among the persons who exchanged their shares in Jorgenson US for shares in Jorgenson Canada, was Mr Richard Ciceri, who was born and raised in Canada and who was during the pertinent taxation years, employed in the United States with Jorgenson US.

During the period from January 1, 1974 to December 31, 1975, of the 120,000 shares issued and outstanding voting common shares of Jorgenson Canada, Jorgenson US a non-resident company of Canada was the beneficial owner of 58,800 shares and Mr Richard Ciceri owned 3,000 shares, for a total of 61,800 common shares. Together, Jorgenson US and Mr Ciceri, were the majority shareholders of Jorgenson Canada.

Issue

Although the appeal is from an assessment of Jorgenson Canada, the determination of the issue as pointed out by counsel, is predicated on whether or not Mr Ciceri was a resident of Canada during the 1974 and 1975 taxation years.

Summary of Facts Relative to Mr Ciceri

Mr Ciceri was born in Guelph, Ontario, in 1941 of Canadian parents. He received his primary, secondary education and 2 years of University in Canada. He married a Canadian girl in 1965. In 1967, Mr Ciceri and his wife proceeded to the United States where, under a student visa, he studied engineering at the University of Wisconsin. In 1968, he received his master’s degree in civil engineering and obtained employment with Roy Jorgenson US. The nature of Mr Ciceri’s employment, as an engineer in setting up managerial systems, required that he work with the employer’s clients for periods of up to 3 years. He remained with Jorgenson US until December of 1975 and worked at various sites in the United States and abroad.

In May of 1972, he was assigned by Jorgenson US to go to Sierra Leone for a period of 39 months and remained there until December 1975.

Submissions

In contending that Mr Ciceri was a Canadian resident in the pertinent taxation years, counsel for the appellant referred to Mr Ciceri’s Canadian background viz, his birth, education, parents and marriage, as constituting for Mr Ciceri’s connections and ties with Canada which were never broken. It is the appellant’s submission that it was Mr Ciceri’s intention to return to Canada and that he had made no attempt to break his connections with Canada. Counsel for the appellant submitted that Mr Ciceri’s first child who was born in the United States, was returned to Canada and steps were taken to acquire Canadian citizenship for the child. Mrs Ciceri, left Sierra Leone to give birth to her second child in Canada, allegedly so that the second child might also have Canadian citizenship.

It is the appellant’s submission that the nature of Mr Ciceri’s employment was transitory which compelled him to leave Canada and that he did so even in the years 1976 to 1979, when he was assigned to the Yukon and to Nepal.

During the years 1974 and 1975, although assigned to Sierra Leone, the appellant contends that Mr Ciceri’s intention was to return to Canada and for that purpose Mr Ciceri had contributed to the Canadian pension plan; he had maintained bank accounts in Canada and maintained his membership in Canadian organizational groups in order not to sever his Canadian ties.

Counsel for the appellant suggested that Mr Ciceri prior to leaving the United States in 1972, was not a resident of the United States. Nor according to counsel for the appellant, did he become resident of Sierra Leone during 1974 and 1975, but was at all times a Canadian citizen. Counsel concluded therefore, that the 3,000 shares of Jorgenson Canada was held by Mr Ciceri, were held by a Canadian resident and the control of Jorgenson Canada, was in Canadian hands and entitled to the small business deduction provided for under subsection 125(1) of the Income Tax Act.

Counsel for the respondent held that Mr Ciceri was not a Canadian resident during 1974 and 1975. He pointed out that after completing his engineering course in the United States in 1967, Mr Ciceri could have returned to Canada, but chose instead to take up employment with Jorgenson US and was employed with that company until December 1975. Admitting that Mr Ciceri may have made occasional visits to Canada in that period of time and that he may have stored his furniture in Canada for the period of 39 months, while he was in Sierra Leone, counsel for the respondent contended that that was not sufficient to establish that Mr Ciceri was a Canadian resident in 1974 and 1975. Counsel recalled that Mr Ciceri took abode with his wife and child in Michigan in 1967, that he and his wife worked there for an American company, for a period of two to three years and were at the time they left for Sierra Leone, ordinarily residents of the United States and were not in fact and in law residents of Canada at any time from 1972 to 1975. He concluded that the shares held by Mr Ciceri were not held by a resident of Canada in the years 1974 and 1975.

Finding of Facts

The determination of residency as opposed to citizenship or domicile, is a question of actual fact much more than it is a question of background or even of intention. The facts in this appeal are that, having studied in the United States under a student visa, Mr Ciceri chose to exercise his profession in the United States. Whatever his country of origin may have been, whatever his emotional ties or intention may have been, the facts are that from 1967 to the time he left for Sierra Leone he was physically not residing in Canada. The fact is that Mr Ciceri worked in the United States for an American Corporation and lived there with his family. In my view, Mr Ciceri’s short visits to Canada to see his parents can only be qualified as occasional. The storing of his furniture in Canada while residing in Sierra Leone for 39 months, can hardly be considered as moving to and as residing in Canada. Nor does the purchase of shares in a Canadian subsidiary of the American company Mr Ciceri worked for, make him a resident of Canada.

Even if one were to admit that Mr Ciceri had the intention at some future time to establish his residence in Canada, the facts are that in 1974 and up until December of 1975, he had not done so. Although the fact that Mr Ciceri for the period he worked in the United States, did not file his tax returns as a resident of Canada, is not determinative of itself as to whether or not he was a resident of Canada, it does in conjunction with the other facts that were brought out in evidence indicate that Mr Ciceri himself did not consider that he was a resident of Canada during the pertinent taxation years.

A careful analysis of the cases referred to by counsel for the appellant in his List of Authorities, convinces me that the facts in each of the cases cited are easily distinguishable from those in the instant appeal, but, more important, the principles or criteria that the courts have enunciated in determining the residence of a taxpayer have not been met in the present instance, eg Mr Ciceri made only occasional visits to Canada from 1967 to 1975; his physical presence in Canada had no permanency; Mr Ciceri had no place of abode available to him in Canada (his father’s home in Canada cannot be considered as being available to, kept by, or for Mr Ciceri as a residence for himself and his family). There is not sufficient evidence to support his declared intention of returning to Canada prior to or during the pertinent taxation years and his absence from Canada from 1967 to 1975 was permanent and not merely temporary.

The connections or the ties which Mr Ciceri may have had in Canada from 1967 to 1975, were purely emotional in nature rather than factual and in my opinion, do not meet the tests established by the courts as to what constitutes residency in Canada for tax purposes.

The basic and most convincing principles to be used in determining the residency of a taxpayer, was well summarized by Mr Justice Cartwright, in the decision of the Supreme Court of Canada, in G E Beament v MNR, [1952] CTC 327; 52 DTC 1183, cited by counsel for the respondent. Notwithstanding the differences as to the facts to which counsel for the appellant referred, Mr Justice Cartwright’s remarks are nevertheless most applicable in determining Mr Ciceri’s residency for purposes of this appeal. And at p 333 of CTC, 1186 of DTC Mr Justice Cartwright states:

It has frequently been pointed out that the decision as to the place or places in which a person is resident must turn on the facts of the particular case. Bearing in mind all the facts which are set out above, perhaps in unnecessary detail, and par- ticulary that throughout the period in question and for several years prior thereto the appellant was physically absent from Canada, had therein no dwelling house or other place of abode to which he could as of right return and was maintaining his matrimonial home in the United Kingdom, I am of opinion that he was not at any time in such period resident or ordinarily resident in Canada.

I conclude therefore, that during the period of 1974 to December of 1975, Me Ciceri was not a resident of Canada and that the 3,000 shares of Jorgenson Canada which he held were not owned by a resident of Canada. Having come to this conclusion, I must hold that Jorgenson Canada was not a Canadian-controlled private corporation within the definition of paragraph 125(6)(a) and paragraph 257(2)(a) of the Income Tax Act and is not entitled to the deduction provided for in subsection 125(1) of the Act.

The appeal is therefore dismissed.

Appeal dismissed.