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Citation: 2005TCC90
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Date: 20050331
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Docket: 2004-1827(IT)I
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BETWEEN:
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JANUSZ J. BUJNOWSKI,
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Appellant,
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And
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HER MAJESTY THE QUEEN,
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Respondent.
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AMENDED REASONS FOR JUDGMENT
Sarchuk J.
[1] In his return of income filed for
the 2001 taxation year, the Appellant reported total income in
the amount of $64,149 and claimed a foreign tax credit with
respect to taxes paid in the United States of America in the
amount of $14,787.28. In reassessing tax for that year, the
Minister of National Revenue disallowed the Appellant's
claimed foreign tax credit. In the course of his submission, the
Appellant made reference to a reassessment dated January 20, 2003
which, he said, "confirmed that I had fully paid Canadian
tax and the balance from reassessment and final balance was
nil". The Minister does not dispute the existence of that
reassessment but states that a subsequent notice of reassessment
dated May 27, 2003 indicated a revised amount of tax payable of
$10,370.30. It is this reassessment which is before the
Court.
[2] The Appellant is a Canadian
citizen and has a Canadian passport. In January 2001, he was
hired as a computer systems analyst by the Maxim Group located in
the state of Michigan, USA He said his employment with an
American company was based on NAFTA which he said permitted a
Canadian citizen to work in the USA and no visa was required. He
expected this employment would be long-term and said he had
considered purchasing a residence in Michigan. However in October
2001, this employment was terminated and on or about November 1,
the Appellant returned to Canada. The Appellant says that he was
in the United States for more than 183 days and that as a result,
he was considered a US resident for tax purposes and had all US
taxes from his employment income deducted at source.
[3] The Appellant contends that the
Minister's assessment was wrong in that it was premised on a
conclusion that during the year in issue, he was a factual
resident of Canada. He testified that while in the US, he resided
in a rental dwelling with "my individual Michigan telephone
number and line". His salary, in US dollars, was deposited
to his account in a US bank; he used American credit cards, had
American medical and dental insurance, was a member of American
professional associations, and had investments in the US.
Donations were made by him to US charitable non-profit
organizations. He had a Michigan driver's license, his motor
vehicle was registered in Michigan and was insured with an
American company. Following the loss of his employment at the end
of October 2001, the Appellant began receiving regular US
unemployment benefits.
[4] In the course of
cross-examination, counsel for the Respondent made reference to
Revenue Canada questionnaires with respect to the determination
of residency status completed and filed by the Appellant.[1] The first was dated
October 26, 2002 and the second, January 18. 2003. The
Appellant's responses in each are fairly consistent and
reflect the following undisputed facts:
A. His wife Anna remained in
Canada, resided in the house they jointly owned in Mississauga,
and was "looking for a job". Furthermore, the Appellant
stated that he would continue to support her and to a lesser
extent, his adult son, in the house that they occupied before his
departure.
B. He conceded that certain ties
would be retained by him while working in the U.S. and more
specifically, the following:
(a) he would keep the majority
of items such as furnishings, appliances and utensils in Canada
as well as personal possessions such as clothing, personal items
or pets; (b) he indicated he would keep vehicles in Ontario which
were registered in that province or territory as well as his
driver's license and would continue to renew the driver's
license upon expiry; (c) he had a valid Canadian passport
and would renew it upon its expiry; (d) he maintained a joint
bank account with his wife in Canada and retained and used credit
cards from Canadian financial institutions; (e) he retained
self-directed retirement brokerage accounts and margin
brokerage accounts with stock, cash and mutual funds; (f) he kept
his telephone listing and service in Canada and stated it was for
both personal and business use; (g) in response to the
question whether he intended to return to Canada, he wrote
'Yes' and added the following comment: "working in
the U.S.A. until retirement or work unavailability due to lack of
jobs in Canada"; and (h) in each of these documents, he
indicated that he made frequent return visits to Canada during
the relevant period.
Appellant's position
[5] The Appellant maintains that the
Minister erred in assuming that he was a factual resident of
Canada during the taxation year in issue. In particular, he
argues that pursuant to the US. Tax Guide for Aliens, he passed
the Substantial Presence Test as a result of which he was
considered to be a US resident for tax purposes and paid taxes
with respect to his employment income, deducted at source.
Furthermore, pursuant to the Canada-United States Tax Convention,
he was not qualified to be exempt from US taxation on employment
income earned there. As a result of passing the I.R.S.
Substantial Presence Test for 2001 and being recognized as a
resident alien for US tax purposes, the Appellant maintains he
should be considered a deemed non-resident of Canada for the
period January 1, 2001 to October 31, 2001. He relies on the
provisions of subsection 250(5) of the Income Tax Act
which read:
250(5) Notwithstanding any other provision of this
Act (other than paragraph 126(1.1)(a)), a person is
deemed not to be resident in Canada at a time if, at that time,
the person would, but for this subsection and any tax treaty, be
resident in Canada for the purposes of this Act but is,
under a tax treaty with another country, resident in the other
country and not resident in Canada.
He noted that there are five residence statuses, i.e. an
ordinary resident, a factual resident, a deemed resident, a
deemed non-resident, and a non-resident. He maintains that his
residency status in the taxation year in issue was not the
ordinary or non-resident statuses nor was he a deemed
resident of Canada because he resided there for less than 183
days. Of the two residence statuses left, he concedes that he
could be classified as a factual resident, but maintains that at
the given time he was resident in another county for purposes of
a tax treaty between Canada and that country and therefore, is
deemed not to be resident in Canada at that time, pursuant to
subsection 250(5) of the Act. The Appellant made specific
reference to the "tiebreaker rules" in paragraph 2 of
Article IV of the Canada-US Treaty and says that if properly
applied, he would be considered a deemed non-resident at the time
when he was resident, for tax purposes, in the USA during 2001.
He argues that these rules rely first on a "permanent
home" test to resolve the residence issue and says that this
test fails to resolve the residence determination given the facts
in his particular case. He relies on the "centre of vital
interest" test and asserts that his economic ties were
significantly stronger with the US due to, among other things,
providing him with his sole source of income. He also contends
that his personal ties were not clearly closer to Canada because
his wife often was with him in the US. Thus the tiebreaker rule
should be determined "as closer to residence in the USA
because of the economic ties". In these circumstances it was
clear that he should not be treated as a factual resident.
[6] The Respondent's position is
that an individual who is a resident of Canada for the purposes
of the Act is a resident of Canada for purposes of
paragraph 1 of the Residence Article of any modern tax treaty
between Canada and another country. Such an individual may also
be resident of the other country for purposes of the same
paragraph in the same treaty. In this situation, the Residence
Article in the tax treaty will provide "tiebreaker
rules" to determine in which country the individual will be
resident for purposes of the other provisions of the treaty. If,
at any time, such "tiebreaker rules" apply and it is
determined that an individual is a resident of another country
for purposes of a tax treaty between Canada and that country,
then subsection 250(5) of the Act will deem the individual
to be a non-resident of Canada for purposes of the
Act.
[7] Counsel for the Respondent
submitted that during the taxation year in issue, the Appellant
was correctly determined to be a factual resident of Canada. She
made specific reference to the facts before the Court which, she
said, had failed to establish that the Appellant made a
'clean break' from Canada during that taxation year. More
specifically, there was nothing in his conduct indicating an
intention not to return. He did not leave with his family nor his
belongings nor did he break most of his ties to Canada. With
respect to the provisions in subsection 250(5) of the Act,
counsel argued that the Appellant has failed the tiebreaker tests
referred to by him. In support, counsel argued that the evidence
established that the Appellant did not have a permanent home in
the US and had much closer personal and economic ties with Canada
during the relevant period of time. Furthermore, the
Appellant's ties with Canada were much stronger than his ties
in the US. Specific reference was made to the fact that he had no
passport in the US, no citizenship, nor was he seeking to obtain
citizenship in the US. He had no family home there and in fact
visited his family in Canada regularly. On the basis of all the
facts before the Court, counsel submitted that the Minister was
correct in concluding that the Appellant was a factual resident
of Canada.
[8] Notwithstanding the
Appellant's submissions to the contrary, the evidence before
the Court leads clearly to the conclusion that his residential
ties to Canada were most significant. Not only did the
Appellant's wife remain in Canada in a residence which they
owned, it is also a fact that she remained in order to find
employment. There is no evidence before the Court to indicate
that the Appellant had at any time contemplated the disposition
of the dwelling nor is there any evidence to support his
statement that he had been considering the purchase of a
residence in Michigan. A number of other residential ties with
Canada also tend to lead to a determination that the Appellant
was factually resident in Canada while employed in the US. He
retained, as previously indicated, personal property as well as
social and economic ties in Canada such as a bank account,
brokerage accounts and self-directed retirement accounts, etc. He
also retained his Canadian passport and memberships in Canadian
professional organizations. On the evidence before me, I have
concluded that the Appellant was a factual resident of Canada and
accordingly, the Minister's assessment was correct.
[9] There is one other issue which
must be dealt with. In assessing the Appellant the Minister had
also denied his claim with respect to the deduction of a foreign
tax credit in the amount of $14,787.28 for the taxation year in
issue. This assessment was made because the Appellant had failed
to provide any documentation in support of the claim. During the
course of the second hearing, the Respondent advised the Court
that a certified copy of the Appellant's 2001 Michigan tax
return and copies of two other forms had been produced[2] and on the basis of
this information, the Minister concedes that a foreign tax credit
in the amount of $12,426.79 may be claimed by the
Appellant in computing tax payable for his 2001 taxation
year.
[10] Accordingly, the appeal is allowed.
Signed at Ottawa, Canada, this 31st day of
March, 2005.
Sarchuk J.
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