Holbrook R Davis v. Her Majesty the Queen, [1978] CTC 536, 78 DTC 6374

Décary, J:—This case in this Court ensues the dismissal by the Tax Review Board of the appeal of taxpayer.

The relevant sections of the Income Tax Act are subsection 48(1) of chapter 148 as it read in 1972 and subsection 48(1) as amended and made retroactive in 1972. Section 48, before its amendment, read in part as follows:

48. (1) For the purposes of this subdivision, where at any time in a taxation year a taxpayer ceases to be resident in Canada, he shall be deemed to have disposed of each property.

After its amendment, applicable to 1972, section 48 read in part as follows:

48. (1) For the purposes of this subdivision, where a taxpayer has ceased, at any particular time in a taxation year and after 1971, to be resident in Canada, he shall be deemed to have disposed, immediately before the particular time, of each property,

(2) This section is applicable to the 1972 and subsequent taxation years.

The parties have filed an amended agreed statement of facts which are all contained in paragraphs 1 to 8 inclusive therein and which reads:

1. Prior to 1956, plaintiff was resident in the United States of America.

2. From 1956 to a point in time during the day of December 30, 1972, plaintiff was resident in Canada.

3. At a point in time during the day of December 30, 1972, plaintiff became resident in the United States of America and ceased to be resident in Canada for the rest of the year.

4. Plaintiff was not carrying on business in Canada at any time after he ceased to be a resident in Canada.

5. Plaintiff was employed in Canada throughout the whole 1972 taxation year.

6. Immediately before the plaintiff ceased to be resident in Canada on December 30, 1972, and became resident in the United States of America, plaintiff was the owner of certain capital properties the fair market value whereof was higher than their adjusted cost base. These capital properties were properties other than taxable Canadian properties within the meaning of the Income Tax Act. (The enumeration of these capital properties is found in schedule 1 here attached).

7. Plaintiff, after he became resident in the United States of America in 1972, did not maintain or acquire a permanent establishment in Canada.

8. If this Honourable Court comes to the conclusion that there was a deemed disposition of capital properties other than Canadian taxable properties within the meaning of the Income Tax Act (as detailed in schedule I hereattached) while plaintiff was a resident in Canada, then the taxable capital gains amount to $72,085.45 pursuant to subsection 48(1) and should be included in plaintiff's income for the 1972 taxation year.

It is my opinion that the provisions that should be applicable are those of subsection 48(1) as amended because that amendment was made retroactive to 1972, which year is the one during which plaintiff left Canada.

In section 48 as amended, reference is made to having ceased “at any particular time” to be resident in Canada and the deemed disposition of property is said to take place “immediately before the particular time’’ which, of course, means the particular time before ceasing to be resident in Canada.

I fail to see how counsel for the plaintiff can say that his client had to be an American resident before ceasing to be a Canadian resident. You leave a room before entering another one, you do not enter one before leaving the other. Indeed, if the plaintiff for instance had gone by aircraft to Japan, on a Japanese airliner, I believe that he would have ceased to be a Canadian resident as soon as the flight was no longer over Canadian land or waters, though plaintiff might not already have been a Japanese resident. The same reasoning could be inferred for travel by ship, once the vessel has left Canadian waters.

The learned counsel for the plaintiff has quoted these remarks of Rand, J in P W Thomson v MNP, [1946] SCC 209 at p 224; [1946] CTC 51 at 64; 2 DTC 812 at 815.

For the purpose of income tax legislation, it must be assumed that every person has at all times a residence.

These remarks immediately follow the above quote, and are part of the same paragraph at 225:

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 life or to which his ordered or customary living is related.

In my view, upon leaving Canada, the plaintiff started his “ordered and customary living’’ in the United States of America.

Counsel for plaintiff referred the Court to the provisions of Article Vill of the Canada-US Tax Convention Act, 7 Geo VI c 24 which reads as follows:

Gains derived in one of the contracting States from the sale or exchange of capital assets by a resident or a corporation or other entity of the other contracting State shall be exempt from taxation in the former State, provided such resident or corporation or other entity has no permanent establishment in the former State.

I cannot concur with the view expressed by learned counsel for plaintiff to the effect that the deemed disposition is a sale or exchange. A deemed disposition is a fiction created by the statute for a specific purpose and herein only for what is known as the departure tax, whereas in my opinion, the reference to sale and exchange in Article VIII of the Convention means sale and exchange as they take place in the course of events and not as a fiction created by statute. Furthermore, it cannot be said that a gain is derived from a deemed disposition.

It was contended that the retroactivity of section 48 as amended was affecting the vested rights of the plaintiff and these remarks of Dickson, J, in Gustavson Drilling (1964) Ltd v MNR, [1976] CTC 1 at 8; 75 DTC 5451 at 5456 were quoted:

The presumption that vested rights are not affected unless the intention of the legislature is clear applies whether the legislation is retroactive or prospective in operation.

I do not believe there are vested rights involved in the present instance. The result would be the same under either section 48 or section 48 as amended because the plaintiff, for the purpose of each section, has ceased to be resident in Canada before becoming resident in the United States of America.

The action is dismissed with costs.