A W Prociuk (orally: July 18, 1974):
1 The appellant, Kenneth F Reeder, appeals from the respondent's reassessment for the taxation year 1972 wherein the appellant was held to be a resident of Canada during the entire year and was taxed accordingly. The appellant contends that he became a resident of France during the period from March 29, 1972 to December 1, 1972; that the income he earned in France while so resident is not taxable in Canada, and that the provisions of section 114 of the Income Tax Act apply. Section 114 states as follows:
114. Where an individual was resident in Canada during part of a taxation year, and during some other part of the year was not resident in Canada, was not employed in Canada and was not carrying on business in Canada, for the purpose of this Part his taxable income for the taxation year is the aggregate of(a) his income for the period or periods in the year during which he was resident in Canada, was employed in Canada or was carrying on business in Canada, computed as though such period or periods were the whole taxation year and as though any disposition of property deemed by subsection 48(1) to have been made by virtue of the taxpayer's having ceased to be resident in Canada were made in such period or periods, and
(b) the amount that would be his taxable income earned in Canada for the year if at no time in the year he had been resident in Canada, computed as though the portion of the year that is not in the period or periods referred to in paragraph (a) were the whole taxation year,
2 The appellant, then aged 26, was born in Canada and, except for the above-mentioned period, had resided in Canada continuously. Early in 1972 he resided in Alexandria, Ontario, where he was employed by the Carnation Company. At the beginning of March 1972 he resigned from his job, and went to Nova Scotia for an interview with Michelin Tire Manufacturing Company of Canada Limited, a Canadian subsidiary of the French corporation, and obtained employment with this company. He then went to France where he was employed in various levels of manufacturing in order to qualify for the position of foreman, which position he now holds.
3 Prior to leaving for France he terminated his apartment lease and placed his furniture, consisting of a refrigerator, stove and bedroom suite, in storage. He tried to sell his car but, being unable to do so, he placed that in storage as well. He had a bank account which he did not close out, but took sufficient funds to purchase a car in France, which he later sold when he returned to Canada.
4 His wife followed him to France shortly after, and gave birth to their child while residing there. He lived in Clermont, France with his family until December 1, 1972 and while there he took part in the social life of France. He took a course in French conversation, and stated in evidence that he can now speak French.
5 After returning to Canada he lived in a motel for the next two months until he purchased a house in February 1973 in Westville, Nova Scotia where he still resides. He contends he severed all residential ties with Canada on his departure. Apart from his few items of personal property which he placed in storage, and his bank account, he had no other property in Canada. He did not renew his Ontario medical and hospital insurance, which ran out in May 1972. He further testified that on leaving Canada he did not know when he would return; presumably this would occur when he had completed all his training.
6 The respondent, in his reply to the notice of appeal, pleads as follows:
3. In assessing the Appellant for income tax for his 1972 taxation year the Respondent assumed that:(a) the Appellant did not centralize his ordinary mode of living with its accessories in social relations, interests, and conveniences in France during the period March 29, 1972 to December 1972 to the extent necessary to establish residence in France,
(b) the Appellant maintained sufficient social accessories and contacts with Canada that he did not sever his residential ties.
(c) His time spent in France was accompanied by a sense of transitoriness and of return.
7 The respondent further invoked Article 10 of the Canada-France Income Tax Convention, dated March 16, 1951 and assented to on June 30, 1951, which is found in the Canada-France Income Tax Convention Act, being chapter 40 of the Statutes of Canada 1951 (First Session), which states as follows:
Article 10
I. Subject to the provisions of the first paragraph of Article 9 above, the salaries, wages and other analogous remuneration are taxable by the State in whose territory the personal activity, the source of this income, is exercised.
II. In the application of the preceding paragraph, it shall not be considered as the exercise of personal activity in one of the States if an employee of an establishment situated in the other State carries out in the territory of the first State a temporary mission of short duration in the course of which his remuneration continues to be a charge on and paid by the said establishment.
8 As an alternative, the respondent further pleaded, in paragraph 7 of his reply, the provisions of section 114 of the Income Tax Act but, at the hearing of this appeal, on learning that the appellant had in fact filed his 1972 return pursuant thereto, learned counsel for the respondent withdrew that portion of the reply.
9 From a review of the jurisprudence on the question of residency, it is obvious that the matter has given the courts considerable difficulty, and the ruling in each case must be viewed in the light of the particular set of facts that governed the situation.
10 In the case of Ernest G Stickel v Minister of National Revenue, [1973] F.C. 259, [1973] C.T.C. 202, 73 D.T.C. 5178, the respondent argued that the appellant was no longer a resident of the United States of America. At page 262 [204, 5179], at the end of his judgment, Chief Justice Jackett stated as follows:
A more difficult question is whether the appellant was “a resident” of the United States at the time contemplated by Article VIIIA. The respondent's position is that this contemplates residence in the sense given to that word when it is a basis for liability to income tax and that it is a condition of the Article that a person must have been so resident throughout the period of the exemption. If that be so, it is difficult to envisage what tax relief is accorded by Article VIIIA in the case of professors and teachers that would not otherwise be available in the case of all taxpayers by virtue of the foreign tax credit provisions which are, it is believed, also contemplated by the Tax Convention in question.
He then went on to say:We do not find it expedient to attempt to formulate any definition of what is implied by the words “is a resident” in their context in Article VIIIA.
He concluded that paragraph by saying:If that would have been so in the case of a person who could afford to maintain his family in the United States while away, and was willing to do, we are of the view that a person who is on a two year “temporary” visit to teach in a foreign university was equally a “resident” of his native land for the purposes of Article VIIIA even though he took his family with him and did not continue to incur the expense of maintaining his community and social relationships in his native land.
I would underline the phrase “for the purposes of Article VIIIA”. The learned Chief Justice concluded that for the purposes of Article VIIIA the appellant in the Stickel case was a resident of the United States of America.11 In Edwin L Schujahn v Minister of National Revenue, [1962] Ex. C.R. 328, [1962] C.T.C. 364, 62 D.T.C. 1225, at page 332 [367, 1227] Mr Justice Noël said:
From this it follows that the terms “resident” and “ordinarily resident” are very hard to define and as put by Rand, J, in Thomson v. MNR, [1946] S.C.R. at p 224, [1946] C.T.C. at p 63:
“The gradation of degrees of time, object intention, continuity and other relevant circumstances, shows, I think, that in common parlance residing is not a term of invariable elements, all of which must be satisfied in each instance. It is quite impossible to give it a precise and inclusive definition. It is highly flexible, and its many shades of meaning vary not only in the contexts of different matters, but also in different aspects of the same matter. In one case it is satisfied by certain elements, in another by others, some common, some new.
The expression ordinarily resident carries a restricted significance, and although the first impression seems to be that of preponderance in time, the decisions on the English Act reject that view. It is held to mean residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence. The general mode of life is therefore relevant to the question of its application.”
12 The learned judge also quoted from the case of In re Income Tax Act (Manitoba) (1933), 41 Man. R. 621, as follows:
To determine whether a person has ceased to be resident of any particular place, the duration of his previous residence, his connections with that community and his interest in it are circumstances to be considered.
13 As to the application of Article 10 of the Canada-France Income Tax Convention, I note that Article 2, paragraph VI, defines the term “permanent establishment” in a manner which, in my humble opinion, places a limitation on Article 10, if in fact Article 10 applies in the instant case.
14 In answer to a direct question on cross-examination, the appellant stated that he paid no income tax in France. In MNR v Ernest G Stickel, [1974] C.T.C. 416, 74 D.T.C. 6268, Mr Justice Judson of the Supreme Court of Canada said at page 417 [6269]:
I am not overlooking the fact that the respondent paid no tax in the United States on the income in question here. There is evidence that the United States tax authority has treated him as a non-resident in respect of this income. Although the evidence is scanty, I am prepared to infer that this must have been as a result of some representation made by the respondent to the United States tax authority. Our problem is whether he comes within the treaty giving him exemption for Canadian tax on his Canadian income, and on this issue I agree with the Federal Court of Appeal that he does and on both the grounds given by that Court.
15 Similarly, in the instant case, the problem is whether the appellant was a non-resident of Canada for a period of 246 consecutive days. This is perhaps one of the narrowest cases to be decided. Considering the evidence in its totality, and on the basis of the case law before me, I am of the opinion that the appellant, on the balance of probability, has discharged the onus the Act places on him, and I would allow the appeal and refer the matter to the respondent for reassessment in accordance with the provisions of section 114 of the Income Tax Act.
Email this Content