Citation: 2009 TCC 493
Date: 20091002
Docket: 2009-1013(IT)I
BETWEEN:
GUY-NOËL CHAUMONT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
This appeal pertains to
the 2004 and 2005 taxation years. It raises three questions, which the respondent
has stated as follows:
(a)
For the 2004 taxation year, the Minister had the
authority to reassess beyond the normal reassessment period.
(b)
For the 2004 and 2005 taxation years, the
Minister was justified in adding the amounts of $1,259 and $2,188,
respectively, as interest income.
(c)
For the 2004 and 2005 taxation years, the
Minister was justified in granting the appellant the respective amounts of
$21.30 and $57.34 as foreign tax credits.
[2]
The appellant was the
only person to testify. He referred to a detailed memorandum, which is in
keeping with the contents of, but also expands upon, his Notice of Appeal,
which is worded as follows:
[TRANSLATION]
Dear Sirs:
This is further to my objection for the 2004 and 2005 taxation
years, which, in my opinion, does not conform to the Protocol signed on
November 30, 1996, in Ottawa, between France and Canada. The Protocol reads as
follows:
Article 24
Non-discrimination
(1)
Individuals who are nationals of a Contracting
State shall not be subject in the other Contracting State to any taxation or
any requirement connected therewith, which is other or more burdensome
than the taxation and connected requirements to which individuals who are
nationals of that other State in the same circumstances are or may be
subjected, notably with respect to the residence. This provision shall
apply to individuals whether or not they are residents of one of
the Contracting States.
Thus, the Protocol referred to above applies only to taxpayers of
the two contracting states who are in the same situation. The other
categories are not covered and cannot under any circumstances be used as
comparators to establish a common tax burden. We are therefore dealing with an
agreement of reciprocity that works in both directions, not just in one
direction.
What is my situation?
Answer:
I was born in France and reside permanently
in Canada.
I am a dual citizen and pay my taxes to
Canada.
Part of my investment interest income is in France.
Thus the comparator for my situation is:
A taxpayer born in Canada who resides
permanently in France.
Who has dual citizenship and pays his taxes to France.
Part of whose investment interest is in Canada.
Question:
Will a Canadian/French taxpayer have a heavier or
different tax burden on his Canadian source income based on the pretext that
the Canadian tax burden is heavier than the tax burden imposed by France?
The answer is no: he will pay $85.59 for 2004 and $230.93 for 2005,
and I made those payments on August 7, 2008.
Moreover, can the French income portion be added to the Canadian income
portion in order to reduce everything to the Canadian tax burden as a "common denominator",
thereby increasing the tax liability, without contravening the intent and the
letter of Article 24 of the Protocol of November 30, 1996, which clearly
dictates that the most advantageous outcome applies?
And can Guy-N. Chaumont, Canadian, be distinguished from Guy-N.
Chaumont, Canadian, without there being any discrimination?
I respectfully ask the Tax Court of Canada to answer my questions under
the Informal Procedure.
Guy-Noël Chaumont
[3]
The amounts set out in
the Notice of Appeal are not in dispute. The appellant, an engineer by
training, gave a proper account of the chronology of his file and he referred
several times to article 24, on non-discrimination, which reads as follows:
(1)
Individuals who are nationals of a Contracting
State shall not be subject in the other Contracting State to any taxation or
any requirement connected therewith, which is other or more burdensome than the
taxation and connected requirements to which individuals who are nationals of
that other State in the same circumstances are or may be subjected, notably
with respect to the residence. This provision shall apply to individuals
whether or not they are residents of one of the Contracting States.
[4]
He asserted and
repeated that, under this article of the Convention between Canada and France, given
income from one signatory of the Convention must be given the same tax
treatment as given income from the other Contracting State. He asserted
that the income earned in France, and which gave rise to the two reassessments,
is exempt from taxation in France, and should therefore also be exempt in
Canada. In other words, interest income that is not assessed in France should
not have been assessed in Canada either.
[5]
The first matter to
decide is whether the Minister could make a reassessment that no longer falls
within the normal reassessment period.
[6]
In this regard,
paragraph 152(4)(a) of the Income Tax Act (the Act), permits or
confers such authority, provided that it can be concluded, on the evidence,
that the person concerned misrepresented the facts by wilful default, or, at
the very least, by neglect or carelessness, upon filing his income tax return
for a taxation year that falls outside the statutory period.
[7]
I feel it is important
to state at the outset that the burden of proof is substantially less demanding
than the burden required by the Act to justify the imposition of a penalty.
[8]
However, it is a real
burden of proof, not a mere formality in which it is simply shown that the tax
return does not comply with the provisions of the Act; otherwise, paragraph 152(4)(a)
would have no justification, because, in such an instance, mere evidence that a
tax return does not meet all the provisions to which it was subject, would
enable the Minister to go back in time without restrictions.
[9]
Parliament has
expressly set up a barrier, an obstacle, that requires the Minister to provide
specific proof in matters that go back farther than the statutory period.
[10]
Although the
seriousness is not comparable to that required for the imposition of a penalty,
it must be an error, a wilful default, a sort of wilful blindness, a sort of
indifference, or even a somewhat reckless lack of care or prudence.
[11]
In the case at bar, the
Minister sought to highlight the appellant's experience, knowledge, and
education with a view to establishing evidence of an error or wilful default. However,
the evidence has shown and established exactly the opposite. An engineer
by training, concerned about meeting his obligations, he drew on his knowledge
and skills to argue the merits of his allegations, not to avoid or evade his
tax obligations. In fact, he initiated several efforts in this regard, and
obtained information which, in his opinion, validates his interpretation.
[12]
Based on the fact that
Canada and France have signed an agreement that provided for non-discrimination,
he assumed that if one country accepted that certain income earned on its
territory was exempt from taxation, then the other signatory country, in which
the income earner resided, must exempt such income as well. Hence, the appellant
concluded that the reassessments were unfounded, and he demanded that they be vacated.
[13]
Being a citizen of both
Canada and France, the appellant submits that this is an unusual situation that
justifies such tax treatment.
[14]
In order to validate
his allegations, the appellant also noted that there is certain specific income
that both countries did not tax reciprocally, namely, government pensions.
[15]
Although the appellant's
submissions were unusual and even surprising, they were neither far-fetched nor
unreasonable enough for it to be concluded that he made a wilful default or
mistake with the intent to escape from his Canadian tax obligations.
[16]
Firstly, he expressed
his objection, and secondly, he took initiatives to show that his allegations
had merit, while taking into consideration the fact that certain income,
specifically, pension income paid to a citizen who lives in a country other
than the one that pays the pension, is not taxed.
[17]
The cross-examination has
demonstrated that the appellant had no specific knowledge of taxation; in fact,
he asserted that he relied on the services of a business in this regard. He
also said that he had provided all the information and documents regarding his
interest income from France.
[18]
To conclude that the appellant's
conduct was a wilful default or that it constituted a sufficient error to
permit the Minister to assess beyond the normal period, would affect any
taxpayer's right to contest the merits of an assessment, and would cause the limitation
period imposed by Parliament to be essentially theoretical.
[19]
It is certainly wise
and prudent to pay the amount set out in an assessment first, and object to the
assessment afterwards. However, I do not believe that it is possible, in the
case at bar, to conclude that the appellant's approach amounts to a mistake or wilful
default.
[20]
The amounts in issue
are small. A wilful default requires a certain indifference or carelessness
that is admittedly less marked than what would be required for a penalty, but
it seems to me essential that the evidence genuinely support a complaint that such
indifference or carelessness has been shown.
[21]
In order for the Minister
to be able to make a reassessment for a period beyond the statutory one, the
evidence would also have to show that the default was capricious or stubborn.
[22]
The case at bar did not
involve stubbornness or capriciousness; rather, it involved a legitimate
question and a principled concern that had a modicum of foundation. Moreover, the
appellant did not simply express his objection. He took serious
initiatives to approach serious entities in order to assert his position with
respect to small amounts.
[23]
The evidence does not
show that the appellant made a wilful error or default; consequently, the
appeal for that taxation year is allowed, and the reassessment for that year is
vacated.
[24]
As for the 2005 tax
year, the assessment is confirmed: first of all, the contents of Article 24,
entitled "non-discrimination" does not apply; and, secondly, the
relevant statutory provisions, namely sections 2, 3, 4, 9, 12, 18, 20, 126 and
152 and subsection 248(1), clearly and unequivocally state that the disputed
interest income was indeed taxable, subject to certain credits, which, in fact,
the appellant was granted.
[25]
Since the appellant's
contentions are based on the Convention Between the Government of Canada and
the Government of the French Republic (as amended by the Protocols of January
16, 1987 and November 30, 1995) I believe it would be helpful to cite the
following excerpt therefrom:
Article 11
Interest
1. Interest arising in a Contracting State and paid to a resident of
the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State
in which it arises and according to the laws of that State, but if the
recipient is the beneficial owner of the interest the tax so charged shall not
exceed 10 per cent of the gross amount of the interest.
[26]
This provision is very
clear, and completely validates the reassessment.
Signed at Ottawa, Canada, this 2nd day of
October 2009.
"Alain Tardif"
Translation certified true
On this 10th day of November 2009
Monica Chamberlain, Reviser
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