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Citation: 2004TCC6
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Date: 20040115
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Docket: 2000-5077(IT)G
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BETWEEN:
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KENT AUSTIN,
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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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____________________________________________________________________
Counsel for the Appellant: Thomas McRae
Counsel for the Respondent: Andrea Jackett and
Lorraine Edinboro
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Toronto, Ontario, on December 5, 2003)
McArthur J.
[1] The Appellant was a CFL (Canadian
Football League) football player and non-resident of Canada
in the 1994 and 1995 taxation years. Upon consent, the appeal for
the 1996 taxation year is allowed. The only issue is whether the
Appellant's U.S. income in 1994 and 1995 is calculable on a
per day basis as presented by the Minister of National Revenue or
on a per game basis as submitted by the Appellant.
[2] For the most part, the facts are
not in dispute. The Appellant was a quarterback in the CFL for
several teams from 1987 to 1996 inclusive. He received employment
income from the B.C. Lions in 1994 in the amount of $411,640, and
in 1995 in the amount of $104,697 while playing for the Toronto
Argonauts. Including the pre-season training camps, the Appellant
was employed in 1994 from June 1 to November 17 for 180 days and
in 1995, from June 1 to October 27 for 149 days. During
these years, he played three games in the United States in 1994
and four games in the United States in 1995 while with the Lions
and Argonauts, respectively. The interlocking games with the U.S.
teams no longer exist in the CFL.
[3] The Respondent submits that the
Appellant's employment income in 1994 should be calculated as
assessed upon the following ratio: six days of 180 days at a
salary of $411,460; and in 1995, eight days of 149 days at a
salary of $104,697. The Respondent allocated six and eight days
in 1994 and 1995, respectively, for the times when the Appellant
was physically present in the U.S. while playing for the Lions
and Argonauts.
[4] The Appellant's position is
that the employment income between Canada and the U.S. should be
based on the ratio of games played in Canada and the U.S.
reflecting the actual number of games played in Canada and those
played in the U.S. during the season, versus the total number of
games in the performance of the athlete's employment duties.
Obviously, the dispute boils down to which one of these two
fractions or equations is to be used, the time method or the gain
method.
[5] I accept the Appellant's
position that the employment days he was present in the U.S.
should be three days per game or nine days in 1994 and twelve
days in 1995, although this makes little difference in the
outcome. The base salary in the Appellant's contract with the
B.C. Lions reimbursed him for games and personal appearances.
[6] The Minister's traditional
position with respect to non-resident athletes performing
services in Canada is that the amount of remuneration allocated
to Canada should reflect the amount of time spent in Canada, the
formula being the number of days in Canada during the team season
times the employment income number of days in the team season.
This is particularly applicable to hockey and sports other than
Canadian football.
[7] I agree with the Appellant that
the present appeal is an anomaly because the CFL no longer plays
in the U.S. Secondly, the CFL contract the players must enter
into is different from most other sports because the CFL contract
is so one-sided in favour of the clubs. This has been
developed, I believe, because of the league's general lack of
funds. Paragraphs 3, 10 and 11 of the CFL contract filed in
evidence read as follows:
3. For the
Player's services as a skilled football player during the term of
this contract, and for his agreement not to play football, or
engage in activities related to football, for any other person,
firm, club or corporation during the term of this contract and
for the option hereinafter set forth giving the Club the right to
renew this contract and for the other undertakings of the Player
herein the Club promises to pay the Player the sum of $427,500.00
CAN Dollars to be payable as follows: 100% of said sum to be
divided into eighteen (18) equal instalments and paid to the
Player within forty-eight (48) hours of each regular season
game whenever the Club schedule permits it to be practicable. It
is understood between the parties hereto that payment to the
Player by the Club for League Playoff games will be made as
hereinafter provided.
10. The Club shall have
the right to terminate this contract upon notice to the Player
if, in the opinion of the head coach and/or general manager: (a)
the Player fails at any time during the term of this contract to
demonstrate sufficient skill and capacity to play football of the
calibre required by the Club; (b) the Player's work or conduct in
the performance of this contract is unsatisfactory; (c) where
there exists a limit to the number permitted of a certain class
of player and the Player, being within that class, should not be
included amongst the permitted number; or (d) termination of this
contract is in the best interests of the Club having regard for
the competitiveness of the Club as a whole or the formation of a
team with the greatest overall strength. It is agreed by both
parties that the Club's head coach and/or general manager, as the
case may be, shall be the sole judge(s) as to the competency and
satisfaction of the Player and his services and, in particular,
as to the criteria set out in sub-paragraphs (a) to (d) of this
paragraph.
11. Upon termination of
this contract during the football season, the Player shall only
be entitled to receive and the Club shall only be required to pay
to the Player as compensation for services theretofore rendered
hereunder, such portion of the total compensation for the regular
season as provided in Paragraph 3 hereof; as the number of the
regular season games already played bears to the total number of
games scheduled for the Club for that season, and upon such
termination the Club shall pay to the Player the balance of such
compensation as then remains owing to the Player. Termination of
this contract shall not be effective unless it is terminated in
accordance with the terms and conditions contained in the
Collective Agreement.
[8] Neither Article XV of the
Canada/United States Tax Convention (1980), nor
subparagraph 115(1)(a)(i) of the Income Tax Act
provide much guidance with respect to arriving at an allocation.
To be successful, the Appellant has to establish that his
approach was more reasonable or appropriate than that of the
Minister.
[9] The Appellant's position can
be distinguished from the cases provided by the Respondent. The
Appellant's contract provided that he would be paid only for
the games played, unless he did not play because of a game
injury. The contract provided no payment guarantee, which is the
norm in hockey, baseball and other sports. I accept the
Appellant's evidence in this regard. I do not believe that
the Minister's allocation of six and eight days over 147 and
180 days, respectively, is realistic or reasonable because the
Appellant was paid only for the games he played with the
exceptions referred to. He was paid a token amount of
approximately $400 weekly for the training camp period and I
refer to Exhibit A-3. His per game payment amount far
outweighed the payment for the services that are insignificant in
comparison. It is not reasonable to use the Minister's ratio
of days present in Canada versus the days present in the U.S.
While the Appellant's method has obvious flaws, I find it is
more reasonable and closer to reality than the
Minister's.
[10] The Appellant's pay was divided
into 18 parts, one part for each game and, as stated, if he was
cut, or did not play a game for other reasons other than injury,
he did not get paid. There was no guaranteed payment as provided
for in the hockey player cases referred to by the Respondent.
[11] The Appellant is subject to a tax under
section 115 of the Act on taxable income earned in Canada.
He played 15 of 18 games in Canada in 1994. His Canadian income
for 1994 and 1995 is to be calculated on a per game basis, 15
over 18 games of his total income in 1994 and 14 over 18 games of
his total income in 1995. The allocation of income earned in the
U.S. is of course three over 18 of the total amount in 1994 and
four over 18 in 1995. The four or five weeks pre-season
payments are incidental to the per game payment.
[12] The law provided is of little
assistance. The CFL contract has to be considered to the
exclusion of the cases provided dealing with hockey contracts. As
stated, Article XV in the Treaty is of little
assistance. It provides, in effect, that the Appellant's
income derived in the U.S. shall be taxable only in the U.S. This
does not assist us in determining the allocation of income. The
Appellant's counsel referred to the often-quoted statement in
Gladden Estate v. the Queen, 85 DTC 5191, where Addy J.
stated that an ordinary taxing statute or tax treaty must be
given liberal interpretation. I have adopted this approach.
[13] I believe it is overly restrictive to
find that the Appellant, who plays three or four of 18 games in
the U.S. in a one-year period, must have income calculated based
on his time of six or eight days in the U.S. over the number of
total days in the season. The ratio of three over 18 and four
over 18 is far more realistic. It is not perfect but more
reasonable.
[14] While I am overlooking the
Respondent's submission that the Appellant, if injured, would
be paid under certain circumstances for not playing, this fact
does not justify the extraordinary imbalance using the
Minister's ratios. I was presented with the Minister's
allocation method and with the Appellant's. I find the
Appellant's far more reasonable and I was left with no other
formula for a compromise.
[15] The Appellant's appeals are allowed
with taxed costs and the reassessments are referred back to the
Minister for reconsideration and reassessment on the basis that
the allocation of income earned in the U.S. by the Appellant
should be determined on a per game basis for the taxation years
1994 and 1995; and the appeal for the 1996 taxation year is
allowed upon consent of the parties.
Signed at Ottawa, Canada, this 15th day of January, 2004.
McArthur J.
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