Mariette Laramée v. Minister of National Revenue, [1976] CTC 2152, 76 DTC 1116

The Assistant Chairman:—This is an appeal by Mariette Laramée from an income tax assessment in respect of the 1970 taxation year.

There are two points at issue in this case: the first is whether appellant was required to pay federal income tax for the portion of 1970 that she was absent from the country, and the second is whether an amount of $538.43 paid in proviincial income tax to Quebec by appellant during 1970 is wholly or partially deductible from her federal income tax for 1970, in accordance with the provisions of subsection 33(1) of the federal Income Tax Act.

Appellant was represented by a friend who is not a lawyer, and the Board had to be very flexible in applying the rules of procedure at the appeal hearing, in order to allow appellant to make all her claims in a case which, in my opinion, is quite complicated and somewhat unusual.

Despite appellant’s testimony that she should not have had to pay federal income tax during the entire period from September 1, 1970 to August 31, 1972, and since the Board has under consideration the assessment for the 1970 taxation year, it can only decide on the appeal from the assessment for that year.

The facts of this case are as follows: On January 1, 1970 the appellant, who was residing in Hull, Quebec at the time, was a teacher at the Language Bureau of the Public Service Commission. Under a three-sided contract, between the Public Service Commission, the Minister of National Defence and appellant, the latter was hired for a two-year period, from September 1, 1970 to August 31, 1972 to teach the children of Canadian forces personnel stationed in the Federal Republic of Germany. Appellant was loaned to the Department of National Defence by the Public Service Commission and received her salary directly from the Public Service Commission. However, the Public Service Commission was reimbursed by the Department of National Defence (Exhibit A-1).

Since appellant was in Germany when she filed her income tax return in respect of the 1970 taxation year, she sent all the information regarding her income to the federal tax office in Ottawa and asked that the tax payable for 1970 be calculated for her. On July 31, 1971 appellant received an assessment notice granting her a refund in the amount of $597.48. This left $807 in income tax payable for 1970 (Appendix 2 of the record).

On December 22, 1971 appellant received a notice of reassessment requiring her to pay $28 plus $1.08 in interest. Thus the total federal income tax payable for 1970 was $835 (Appendix 3 of the record).

Further, appellant was assessed and paid $538.43 in provincial income tax to Quebec for the 1970 taxation year.

Appellant came back to Canada in 1972 and learned that some persons who had done the same work as she in Germany had been reimbursed for the full amount of the tax paid for the 1972 and 1973 taxation years, and that others had never paid income tax to Germany or Canada during their time in Germany. Appellant, therefore, asked the Ottawa District Office to review her assessments for 1970, 1971 and 1972. The Office told her that she had to pay tax during her stay in Germany and sent her a notice of reassessment dated November 30, 1973 for the 1970 taxation year, in which she was told to pay $1,093.30 in federal income tax plus $168.22 in interest (Appendix 5 of the record).

If appellant was in fact required to pay income tax during the portion of 1970 that she was in Germany, there appears to be some confusion at the Department of National Revenue as to the amount of tax that appellant was to pay. Since respondent, at appellant’s request, calculated the amount of tax payable by appellant, and was not certain about the amount payable before November 1973, even admitting and allowing for the theory that the Minister cannot be held responsible for errors made by his clerks, it is unrealistic, in my opinion, to expect the taxpayer to know how much tax was payable when she filed her 1970 income tax return.

On the basis of the facts, it appears that there was some doubt at the Department of National Revenue regarding the taxation of appellant while she was abroad. Appellant’s statement that other persons hired to teach abroad were reimbursed for the income tax they paid, or paid none at all, is hearsay and has no probative force or effect. However, the letter from Mr Elgin Armstrong, Deputy Minister of National Revenue, to Mr Norman Goble, Secretary General of the Canadian Teachers’ Federation, dated December 5, 1972, to some extent confirms appellant’s statement and throws some light on the point at issue (Exhibit A-2).

It appears that at the time appellant was teaching abroad, there were 195 teachers from school boards of various provinces, and five teachers from the Language Bureau of the Public Service Commission, who were teaching the children of Canadian military personnel in Germany. Mr Armstrong’s letter to the Secretary General of the Canadian Teachers’ Federation refers only to the teachers from the various school boards who were hired to teach at the military base under a contract between the Minister of National Defence, the school boards and the teacher. The Deputy Minister’s letter states in part that the school board teachers who left Canada in 1973 to teach abroad would not have to pay income tax for the 1972 and 1973 taxation years.

This is undoubtedly what the appellant. was referring to in her testimony.

However, it should be noted that this directive from the Deputy Minister applies only to school board teachers from the various provinces.

Appellant herself stated that she worked for the Language Bureau of the Public Service Commission for the entire period that she was teaching abroad, and that the Deputy Minister’s letter did not apply to federal employees hired by National Defence. As a result of the three- sided contract (Exhibit A-1), subparagraph 139(3)(c)(i) of the Act applies to appellant as a federal employee.

Subparagraph 139(3)(c)(i) reads as follows:

139. (3) For the purposes of this Act, a person shall, subject to subsection (33), be deemed to have been resident in Canada throughout a taxation year if

(c) he was, at any time in the year,

(i) an ambassador, minister, high commissioner, officer or servant of Canada,

Since appellant was a federal employee, she was considered a resident of Canada for all of 1970, including the period during which she was teaching abroad. She was therefore taxable as a Canadian resident.

At first it seemed to me that an anomaly existed, in that some persons teaching abroad were not paying tax, whereas other persons doing exactly the same work were required to pay income tax. I considered that this was an abnormal situation. We must assume that the Deputy Minister also held this view, because in his letter of December 5, 1972 to Mr Goble he stated, in the first line of the second paragraph, that the income of school board teachers who left Canada to teach abroad after 1972 would be considered income from employment in Canada and would be subject to federal tax. Thus all teachers abroad, both from school boards and the Public Service Commission, would be treated in the same way and all would thereafter be required to pay income tax. It is unfortunate that appellant was not a school board teacher and therefore was not able to take advantage of this anomaly, at least for a while. However, the Tax Review Board cannot overlook the fact that during her stay in Germany appellant was an employee of the Public Service Commission and as such was considered to be a resident of Canada for the entire taxation year in accordance with the previsions of subparagraph 139(3)(c)(i), and was taxable under section 3 of the Income Tax Act. The Board must apply the Act as it is written and leave the task of correcting omissions or anomalies that occasionally slip into legislation to those responsible for doing so.

Applying the provisions of the Act, the Board has no choice but to conciude that appellant was required to pay federal income tax for the 1970 taxation year.

With respect to the second point at issue, as to whether tax paid by appellant to Quebec in the amount of $538.43 during the 1970 taxation year is wholly or partially deductible from her federal income tax, I believe there are two aspects to the problem. The first is appellant’s assessment by Quebec in the amount of $538.43 for the 1970 taxation year in accordance with the provisions of the Provincial income Tax Act of Quebec, in respect of which the Board clearly has no jurisdiction over this personal assessment. The second aspect is that for purposes of section 33 of the federal Income Tax Act, the Board must take into consideration that in 1970 appellant paid $538.43 in provincial tax.

Initially, counsel for the respondent seemed to think that despite the fact that appellant was not entitled to a deduction of 28% on the portion of income that she earned outside the province, in accordance with section 33 of the federal Income Tax Act, she had in fact received this deduction in respect of the income which she earned in Quebec from January 1, 1970 to August 19, 1970 and on which she paid provincial tax.

For her part, appellant maintained that she had paid a total of $2,471 in federal and provincial tax and that she had received no deduction for the income she had earned and the tax she had paid while she was a resident of Quebec.

Counsel for the respondent noted that since the federal assessment on appellant’s gross income, which was $8,964 in 1970, was $1,928, “this is in fact the taxable income, and she was not given the twentyeight per cent. Thus she was not entitled to it.”

I interpreted these words, perhaps incorrectly, to mean that the Minister did not grant a deduction in accordance with section 33, not even on the income earned by appellant in Quebec, on which she paid provincial tax.

If, in accordance with subparagraph 139(3)(c)(i), appellant must be considered a resident of Canada for the entire 1970 taxation year for purposes of federal tax, I have difficulty understanding the justification for refusing her the deduction on the tax that she paid to Quebec on the income that she earned in Quebec in 1970, which is clearly provided for in section 33 of the Income Tax Act.

With respect to the income that appellant earned abroad in 1970, it appears that there is a conflict between the federal Income Tax Act and the Provincial Income Tax Act of Quebec. In their respective applications, they appear to lead accidentally to double taxation for Canadian taxpayers residing in Quebec, for which no deduction or corrective action appears to have been provided. The Tax Review Board is well aware that it has jurisdiction over, and can rule on, tax assessments of the Minister of National Revenue only in accordance with the federal Income Tax Act. However, I feel that in performing its duties in this case, the Board must draw attention to what appears to be a technical conflict between the wording of a federal and of a provincial statute, the application of which appears to work to the disadavantage of taxpayers living in one province as compared to taxpayers living in other provinces. The Board of course leaves the task of correcting this anomaly to those who have the authority to do so, if they deem such action appropriate.

In the case at bar the appeal is allowed in part, and the entire matter is referred back to the Minister of National Revenue for reexamination and reassessment, if appropriate. Since appellant was a federal employee in 1970, she must be considered, for taxation purposes, a resident of Canada for all of 1970, in accordance with the provisions of subparagraph 139(3)(c)(i) of the Income Tax Act, and the federal tax deduction provided for in section 33 of the Act must be applied to the income that appellant earned in Quebec from January 1, 1970 to August 19, 1970 and on which she paid provincial tax; provided, of course, that this deduction has not already been awarded to her.

Appeal allowed in part.