R & L Food Distributors Limited v. Minister of National Revenue, [1977] CTC 2579, 77 DTC 411

A W Prociuk:—The appellant corporation of Tecumseh, Ontario appeals from the respondent’s reassessment of its income for the 1973 taxation year wherein the small business deduction pursuant to subsection 125(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended, was disallowed on the ground that the appellant was not a Canadian-controlled private corporation in that the controlling shareholders were not resident in Canada.

The appellant is a wholesale food distributor and sells to all major chains in Ontario. It was incorporated before 1970, pursuant to the laws of the Province of Ontario. There are three common shares issued and outstanding and there are three shareholders, two of whom are employed by the appellant and claim that each of them sojourns more than 183 days a year in Canada in the course of their employment and are deemed residents thereof pursuant to subsection 250(1) of the Income Tax Act, which reads, in part, as follows:

250. (1) For the purposes of this Act, a person shall, subject to subsection (2), be deemed to have been resident in Canada throughout a taxation year if

(a) he sojourned in Canada in the year for a period of, or periods the aggregate of which is, 183 days or more,

Paragraphs (b) to (f) are inapplicable.

The said two shareholders, Ben Labe and Joseph Rosenthal, testified in support of the appellant’s appeal. It was conceded at the commencement of the hearing that the third shareholder, Helen Labe, was not a resident.

Ben Labe (hereinafter referred to as “Labe”) stated that the address of his home was 28190 Tavistock, Southfield, Michigan, USA. He was employed as a general manager of the appellant. The appellant owns the land and buildings where it conducts its business and the said assets are worth about $225,000. Mr Labe’s home was and is in Michigan from where he commuted daily to Windsor, Ontario to work. In 1973 he stayed overnight in Canada about 6 or 7 times when he had to travel to Toronto to call on accounts. If he took an early plane to Toronto from Windsor, he would stay overnight in the business premises and slept on a couch. He would also spend some of his holiday time in Toronto with family friends. He is also involved in another business in Windsor, Ontario, of which he is part owner. His estimate is that he spent about 300 work days in 1973 in Canada. He filed an income tax return in Canada as well as in the United States. When asked why he had not moved to Canada. he replied that it was a family decision and as long as he and his wife have children living with them, they would not consider moving. It takes him 25 to 30 minutes to travel from home to the place of business in Canada. He does not own or maintain a residence in Canada. He is a member of the Synagogue in Michigan and makes his contributions there. He is a member of the Detroit Chapter of B’nai Brith. He has no business interests in the United States at all.

Mr Joseph Rosenthal (hereinafter referred to as ‘‘Rosenthal’’) owned a home at 15390 Jay Street, Oak Park, Michigan, USA and resided there in 1973. He also commuted daily to work for the appellant where he was and is a general sales manager. He worked five days a week and got home every evening. He also does not own or maintain a residence in Canada but all his investments are in Canada. He belongs to a social club in Windsor and is a member of a Masonic Order in the United States. He filed his personal income return in Canada and in the United States. He is also a member of the Zadeche Synagogue in Michigan to which he makes contributions.

This is a brief résumé of the evidence of each of the witnesses. The issue here is whether on the evidence before the Board these shareholders are deemed residents of Canada. If they are, then the appellant is entitled to the small business deduction by reason of the fact Labe and Rosenthal control the company.

It has been established beyond any doubt that both shareholders have spent more than 183 work days in 1973 in Canada in the employ of the appellant. Each has a home in Michigan and the family ties are there. With the exception of a few days in the case of Labe, each returned to his home every evening after work. Neither had a residence in Canada. Does this mode of activity or life style amount to sojourning in Canada in the year for a period or periods, the aggregate of which is 183 days or more, within the meaning of subsection 250(1) of the said Act?

In The Shorter Oxford English Dictionary the meaning of “sojourn” is given as “to make a temporary stay in a place; to remain or reside for a time”. In perusing numerous cases decided by the Canadian and British courts, it is obvious that coming from one country to work for the day at a place of business in another country and thereafter returning to one’s permanent residence in the evening is not tantamount to making a temporary stay in the sense of establishing even a temporary residence in the country where the business enterprise is situate. Assuming that Labe and Rosenthal had established a temporary residence in Windsor, Ontario, each of them would still have the burden of establishing that the residence in each case was not casual and uncertain but that it was in the ordinary regular course and that the usual relationship of such residence was beyond doubt. See Thomson v MNR, [1946] CTC 51; 2 DIC 812.

The evidence here is that home and social ties for each witness were clearly in Michigan and not in Windsor. I am of the opinion that neither Labe nor Rosenthal qualify as a deemed resident of Canada. The appellant, accordingly, was not a Canadian-controlled private corporation in 1973 and the appeal herein is dismissed.

Appeal dismissed.