George Lenn Bowen v. Minister of National Revenue, [1972] CTC 2174, 72 DTC 1161

J O Weldon:—This appeal with respect to the appellant’s 1968 and 1969 taxation years was heard at Toronto on December 10, 1971 under the Tax Appeal Board as it was then constituted. The parties were represented by counsel as follows: George W Edmonds, Esq, QC for the appellant and R B Thomas, Esq for the Minister.

Prima facie, the proper disposition of this appeal should turn almost entirely on the correct interpretation to be placed on Article X of the. Schedule to the Canada-New Zealand Income Tax Agreement dated March 12, 1948. However, things are not always what they seem to be. In that respect, this matter makes me think of an iceberg because there is a great deal more to it than appears on the surface. Article X referred to above reads as follows:

A professor or teacher from one of the territories who receives remuneration for teaching, during a period of temporary residence not exceeding two years, at a university, college, school or other educational institution in the other territory, shall be exempt from tax in that other territory in respect of that remuneration.

The above-mentioned tax agreement was introduced into the tax legislation in force in Canada by c 34 of the Statutes of Canada 1948, 11-12 Geo VI, Vol 1, assented to June 30, 1948, wherein it is entitled — “Agreement Between the Government of Canada and the Government of New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income”.

It should be noted at the outset that, when Mr Edmonds had finished putting in the case for the appellant at the hearing of the appeal, Mr Thomas thanked him for his fair presentation of the evidence, stated that he could see no point in cross-examining the appellant, and conceded — “there is really no dispute on the facts”. To that statement by Minister’s counsel should be added my own observation that it was quite obvious throughout the hearing of the appeal that Mr Edmonds had prepared the appellant’s case with painstaking thoroughness which enabled him to present it before the Board in an able and convincing manner.

The appellant is presently faced with an income tax assessment dated December 17, 1970 asking him to remit $2,490.52 made up as follows:

It will now be my plan to explain as briefly as possible how it happens that the appellant (born July 9, 1940) finds himself in the above predicament, and will try to do that by tracing his steps from early in 1968 when he was employed in New Zealand (his mother country) by the Kelston High Schools Board in Auckland as a teacher in Kelston Boys’ High School. At that time, W K Bailey, the then Assistant Superintendent of Secondary Schools in charge of personnel of The Board of Education for the City of Toronto, was in Auckland recruiting mathematics and science teachers for Toronto secondary schools. Mr Bailey interviewed the taxpayer and offered him a Probationary Teacher’s Contract for one year to teach in a Toronto secondary school commencing in September 1968. In due course, Mr Bowen received a letter dated May 10, 1968 from the Director of Education for the Toronto Board of Education advising that he had been appointed to the probationary teaching staff of the secondary schools for one year and assigned to Northern Secondary School, effective September 1, 1968 (the material filed herein includes a photostatic copy of Probationary Teacher’s Contract dated May 9, 1968 which was, apparently, executed by the parties when Mr Bowen arrived in Toronto). On the basis of the above letter, the appellant wrote to the Kelston High Schools Board on May 31, 1968 making application for two years’ leave of absence from the end of Term Il, 1968 in order to gain teaching experience overseas. The following excerpt has been taken from the above letter:

I feel that at this stage of my career, overseas experience will give me the opportunity to see the New Zealand education system in better perspective and enable me to improve my future teaching in New Zealand.

By letter dated June 19, 1968, the Kelston High Schools Board approved the taxpayer’s application for two years’ leave of absence subject to his giving an undertaking to offer his services again to that Board on his return to New Zealand.

On August 29, 1968, the day following his arrival in Canada, the appellant signed a 2-year lease covering an apartment in Toronto, also a statement for the benefit of the Accounting Department of the Toronto Board of Education which reads as follows:

Exhibit A-1

CLAIM FOR EXEMPTION FROM CANADIAN INCOME TAX

AND DEDUCTIONS FOR THE CANADA PENSION PLAN

I hereby claim exemption from deductions for Canadian Income Tax and Canada Pension Plan in accordance with the provisions of Bulletin No 41 issued on May 21, 1968, by the Department of National Revenue — Taxation Division.

I certify that:

(1) My home country is New Zealand;

(2) My date of entry into Canada was 26-8-68;

(3) I came to Canada for the express purpose of teaching in this country;

(4) I intend to leave Canada within 24 consecutive months from my date of entry to the country;

(5) I have not been allowed a tax exemption in respect of teaching income earned in Canada for any period prior to the date of entry referred to in

(2) above.

27 - 8 - 68	“G L Bowen”
Date	Signature

A copy of this statement is on file in the Accounting Department of the Toronto Board of Education.

“R E A Lindsay”

Chief Accountant.

Since I propose to treat the Information Bulletin No 41 referred to in the above-quoted statement as an important element in this appeal, the form thereof and the relevant rules contained therein will now be summarized:

(Extract from the Canada Gazette of Saturday, June 1, 1968)

Coat of Arms Canada

Department of National Revenue Taxation Division Information Bulletin No 41

Date: May 21, 1968.

Subject:

Exemption From Income Tax In Canada— Professors And Teachers From Other Countries

Income tax agreements — between Canada and a number of other countries provide, on a reciprocal basis, for the exemption of a professor or teacher from Canadian income tax for one period of up to two years on his remuneration from teaching, if he has come to Canada temporarily for the purpose of teaching and if his stay in this country is not expected to exceed 24 consecutive months. The countries with which Canada has such agreements — at the present time are the following: the list of 14 countries named includes New Zealand.

In the following rules and comments in regard to this exemption, any reference to a “teacher” should be read as a reference also to a “professor”, and the initials “CPP” should be read as “Canada Pension Plan”.

A 24-month period referred to above almost always will fall into three calendar years, as follows:

Year No 1 (1968) — in which the teacher enters Canada;

Year No 2 (1969) — throughout which the teacher probably will remain

in Canada;

Year No 3 (1970) — in which the teacher intends to leave Canada.

A teacher wishing to claim the above exemption is required to furnish his employer with a signed and dated statement setting out — the information contained in the statement dated August 27, 1968 and quoted in the preceding paragraph.

NOTE (my comment) — It can reasonably be observed that the language set out above taken from the first 4 paragraphs of Information Bulletin No 41 indicates quite clearly that a teacher is exempt from Canadian income tax for one period of up to two years on his remuneration from teaching, if he has come to Canada temporarily for the purpose of teaching and /f his stay in this country is not expected to exceed 24 consecutive months, ie a teacher appears to be entitled under the Information Bulletin to the aforesaid exemption even though he remains in Canada longer than 24 consecutive months if he can show that his stay in this country was not expected to exceed 24 consecutive months, the teacher’s original intention thereby becoming a relevant governing consideration.

Still referring to the appellant’s statement dated August 27, 1968 quoted earlier herein, Information Bulletin No 41 proceeds to state as follows:

In the case of a teacher coming to Canada in 1968 or a later year, such a statement is to be submitted to his employer before the beginning of his period of teaching, or as soon as possible after the issuance of this Bulletin if he is already here. Where this has been done and the employer is satisfied that, to the best of his knowledge, the information given in the statement is correct and is not in conflict with the terms of the teacher’s contract, that statement then will be the employer’s authorization, in respect of that teacher,

(a) not to make deductions from his remuneration on account of income tax,

(b) not to withhold any amounts as CPP contributions by the teacher, and (c) not to make any employer-contributions under the CPP relative to that teacher.

That authorization then will remain in effect for all pay periods up to the end of Year No 2 or until the teacher takes teaching employment with another employer, whichever is the earlier. If the teacher does take other teaching employment before the end of Year No 2, he is required to file another statement with that new employer in order to remain not subject to deductions.

The employer is required to keep on file each statement that he has accepted as an authorization for examination when required by officers of this Department.

With effect from 1st January of Year No 3, the teacher’s employer at that time is required to start making deductions on account of income tax and CPP contributions and to make CPP employer-contributions in respect of that teacher.

When the teacher has carried out his original intention of leaving Canada in Year No 3 within his 24-month period, he has only to file a Canadian income tax return for that year in order to obtain a refund of both the income tax and CPP deductions made from his remuneration for teaching. In these circumstances, the employer also is entitled to claim a refund of his CPP employer-contributions made in respect of that teacher.

Information Bulletin No 41 then goes on to cover the situation where — in Year No 3 (1970) — the taxpayer does not leave Canada by the end of his 24-month period (in this matter, that period ended on August 25,1970) as follows:

In the event, however, that in Year No 3 the teacher does not leave Canada by the end of his 24-month period he will be subject to income tax and to the making of CPP contributions from 1st January of that year; but it will be noted that as deductions for these purposes have already been made from his remuneration, he will not be faced with the need to make up any arrears. Similarly, CPP contributions required from the employer in respect of that teacher have already been made.

NOTE (my comment) — It should be observed that, while the teacher will be subject to income tax and CPP contributions in Year No 3, ie from January 1, 1970, “he will not be faced with the need to make up any arrears” (presumably, this has reference to the appellant’s 1968 and 1969 taxation years which are the only years now under appeal) since “deductions for these purposes have already been made from his remuneration”, and similarly CPP contributions required from the employer (the Toronto Board of Education) in respect of that teacher have already been made.

Information Bulletin No 41 then states under the heading “Transitional Rules” as follows:

Where a teacher has been exempt from income tax and from making CPP contributions, but he has remained in Canada after the expiration in 1968 of the 24-month period computed from the date of his arrival, he will be subject to tax and to the making of CPP contributions in respect of his 1968 income from teaching only to the extent that such income was earned after the end of the month in which the 24-month period expired. This exception to the general rule, set out above, that taxation will be from 1st January of Year No 3, is applicable only in the above circumstances and in respect of 1968 alone, and its application means also, of course, that his earnings from teaching for CPP purposes cannot be greater for that year than the amount of his teaching income that is subject to tax.

A teacher who has not been subject to tax deductions, whose 24-month period does not expire until after the end of 1968 and who is qualified to complete the statement referred to earlier in this Bulletin, should furnish such a statement to his employer before the beginning of the 1968-69 academic year, in order to remain not subject to deduction until the end of his Year No 2. If such a teacher is not qualified to complete a statement or for any other reason does not furnish one to his employer, the latter should commence to make tax deductions and CPP contributions on account of that teacher at the beginning of the 1968-69 academic year and the teacher will be subject to tax and CPP contributions in respect of his teaching income from that date in 1968.

NOTE (my comment) — It appears to be quite clear from the above quotation covering the 2 situations, first, where the teacher’s 24-month period expires in 1968, and secondly, where the 24-month period does not expire until after the end of 1968 (as was the case in this appeal where the 24-month period expired on August 25, 1970) that, where a teacher has been exempt from income tax, and so on, but has remained in Canada after the expiration of the 24-month period computed from the day of his arrival, he will be subject to tax, and so on, in respect of his income in Year No 3 (1970 herein) from teaching only to the extent that such income was earned after the end of the month in which the 24-month period expired. Despite the fact that the first paragraph under the heading Transitional Rules goes on to state: that —

This exception to the general rule, set out above, that taxation will be from 1st January of Year No 3, is applicable only in the above circumstances and in respect of 1968 alone, and its application means also, of course, that his earnings from teaching for CPP purposes cannot be greater for that year than the amount of his teaching income that is subject to tax. —

the second paragraph under the Transitional Rules goes to some trouble to remind a teacher whose 24-month period does not expire until after the end of 1968 to furnish a statement (such as the one quoted earlier herein) to his employer before the beginning of the 1968-1969 academic year (September 1, 1968) in order to remain not subject to deduction until the end of his Year No 2. In that connection, the appellant herein is only claiming exemption with respect to Years Nos 1 and 2 (1968 and 1969).

It should be observed at this point that, all things considered, my approach to the solution of this appeal is going to be to regard Information Bulletin No 41 summarized above as the great mass of the iceberg referred to earlier of which the tip above the water is Article X of the Schedule to the Canada-New Zealand Income Tax Agreement.

In October and November 1969, in anticipation of his return to New Zealand in September 1970, ie the end of his 24-month period of temporary residence in Canada, the appellant made all the necessary arrangements with his travel agent and shipping companies. So, up to that point, he had no thought of deviating from his original plan of limiting his stay in Canada to a period not exceeding 24 months. Now we come to the crux of the matter. Becoming aware in January 1970

— 7 months before the expiration of the relevant 24-month period — of a very attractive 10-week return charter flight to Europe for Metropolitan Toronto Teachers where he and his wife have relatives, Mr Bowen wrote the Minister’s Toronto District Taxation Office on January 12, 1970 requesting information as to his income tax status in the event that he decided to remain in Canada for more than the 24 months originally intended (this involved, of course, teaching in Toronto for the academic year from September 1970 to June 1971). Testifying in connection with his above-mentioned letter to the District Taxation Office, Mr Bowen stated as follows:

So what I did was to write to the Tax Department to see if it was possible for me to stay so I could perhaps look into this other matter. What I did, I wrote to the Tax Department to get confirmation on Bulletin 41 to see if it was possible for me to stay here one extra year.

and —

Basically it came down to asking them if I could stay. I pointed out that I had been teaching here with the Toronto Board and that I had claimed exemption under Bulletin 41, which I had done. I had put in a tax return and had actually been given a tax certificate back saying that I owed them nothing, that I was ok. Then I wrote in asking if it was possible to stay longer and then I would forfeit the last six months’ tax according to Bulletin 41. They returned me this letter back saying it was possible to stay. I believed that as I had already been given a tax certificate I felt that everything was alright.

About a week after he had written his above letter of January 12, 1970 to the District Taxation Office, Mr Bowen received the following prompt reply:

DEPARTMENT OF NATIONAL REVENUE, TAXATION

District Office

36 Adelaide St E

Toronto 1, Ont

January 20, 1970

Mr G L Bowen,

368 Eglinton Avenue East,

Apartment # 203,

Toronto 315, Ontario.

Dear Sir:

Your letter dated January 12, 1970 is acknowledged.

You are advised that present policy provides that where a teacher remains in Canada subsequent to the expiration of his twenty-four month teaching period and has complied with the requirements envisaged by Information Bulletin 41, such a teacher would not be subject to an assessment of taxes and Canada Pension Plan contributions on such income which was previously exempted.

We trust the foregoing is to your satisfaction.

Yours faithfully,

C J Hamahan

for Director-Taxation.

On the strength of the above-quoted letter referring Mr Bowen specifically to the aforementioned Information Bulletin No 41, the existence of which had been known to him for some time as he had signed the statement quoted earlier herein required under the said Information Bulletin on August 27, 1968, the day after his arrival in Canada, the appellant proceeded to take all the many necessary steps to revise his plans to participate in the above-mentioned 10-week return charter flight to Europe (which, incidentally, drastically depleted his savings), and to continue his teaching in Toronto until June 1971 to earn sufficient money to finance his return trip to New Zealand which included the cost of shipping an automobile. It was Mr Bowen’s intention to return to New Zealand in June 1971 until he received the Notification by the Minister dated May 27, 1971 confirming the 1968 and 1969 assessments under appeal herein on the ground —

that the taxpayer’s income from “office or employment” has been properly computed under the provisions of subsection (1) of section 5 of the Act and that the provisions of Article X of the Canada-New Zealand Income Tax Agreement Act, 1948 do not apply.

The taxpayer advised the Board at the time of the hearing of his appeal on December 10, 1971 that his plans were complete to return to New Zealand on December 24, 1971.

In outlining the Minister’s position in this appeal, Mr Thomas stated, in effect: that the sole question to be decided herein is whether or not the appellent is able to bring himself within the four corners of said Article X of the Schedule to the Canada-New Zealand Income Tax Agreement; that, even though the appellant is successful in establishing that he came to Canada in 1968 with the firm intention of staying only two years and no longer, that has no bearing on his tax liability in his 1968 and 1969 taxation years because the matter of his intention is not a relevant consideration in the interpretation and application of said Article X, and that the appellant cannot avail himself of the rules contained in Information Bulletin No 41, even though they were issued by no less a personage than the Deputy Minister of the Department of National Revenue, because the said Deputy Minister does not have the power to legislate nor to interpret legislation for other than his own purposes.

At the hearing of the appeal, Mr Thomas did not appear to seriously question the proposition — to the best of my recollection — that Information Bulletin No 41 dated May 21, 1968, signed by Deputy Minister D H Sheppard and published in the Canada Gazette on Saturday, June 1, 1968, duly supported the appellant’s position herein, his only reservation being that the said Information Bulletin lacked statutory authority. To summarize, it would appear to follow on the basis of the position taken generally by Minister’s counsel: that the appellant, even though he was a visiting teacher from New Zealand and a stranger to our shores, was not entitled to act upon the rules formulated in Information Bulletin No 41 which was brought to his attention the day after he arrived in Canada, namely, August 27, 1968, and again in the above-mentioned letter which he received from the Toronto District Taxation Office dated January 20, 1970; that the appellant is now subject to taxes and interest amounting to $2,490.52 as of December 17, 1970 plus interest from that date only because he changed his position under Article X of the Schedule to the Canada-New Zealand Income Tax Agreement relying specifically on the rules contained in the said Information Bulletin, and that the appellant’s otherwise successful teaching experience in Canada is destined to end as a tax nightmare.

While the aforesaid Article X of the Schedule to the Canada-New Zealand Income Tax Agreement, quoted earlier, is couched in plain, simple language which does not appear to present any great problem of interpretation, it is not my intention to suggest what its correct interpretation should be for the purpose of disposing of this appeal on a peremptory basis because there is, obviously, a further essential matter to be considered which has been emphasized throughout these reasons, namely, the overt act of the Minister’s Deputy Minister in issuing Information Bulletin No 41 dated May 21, 1968 (published in the Canada Gazette of Saturday, June 1, 1968) on which the appellant definitely acted thereby changing his position and leaving himself vulnerable to the assessments imposed by the Minister under said Article X now under appeal by continuing to teach in Canada after August 26, 1970, the expiration date of his 24-month period computed from August 26, 1968, the day of his arrival in Canada. Accordingly, I have come firmly to the conclusion that it is not now open to the Minister to plead Article X of the Schedule to the Canada-New Zealand Income Tax Agreement to the exclusion of and without having due regard to Information Bulletin No. 41 which undoubtedly supports the appellant’s position herein. Thus, in view of the very unusual and peculiar circumstances of this matter — and that comment is equally applicable to the appeal of Colyn P Walker v MNR (infra) which was heard by the Board directly after the present appeal on a substantially similar set of facts both of which appeals are to be disposed of on the same basis by agreement between counsel for the parties who are the same in both matters — the Minister should be regarded as being fully responsible for the above-mentioned overt act of his Deputy Minister in issuing in a formal manner an official interpretation — favourable to the present appellant — of said Article X in Information Bulletin No 41 for the benefit of “Professors and Teachers From Other Countries” and their employers in Canada.

In the result, for the reasons and observations set out above, the appellant should be treated as not being subject to income tax and to the making of Canada Pension Plan contributions in the 1968 and 1969 taxation years. Accordingly, the appeal with respect to the said taxation years should be allowed and the relevant assessments vacated.

Appeal allowed.