Citation: 2009 TCC 498
Date: 20091002
Docket: 2008-2988(IT)I
BETWEEN:
MICHAEL A. POPE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. Facts
[1] The Appellant was
born in Andover, England in 1933. He
immigrated with his parents to Canada in 1947.
[2] The Appellant moved
to Kenya in 1949 and returned to
Canada in 1951.
[3] The Appellant
worked at various jobs in Canada from 1951 onward.
[4] In 1979, the
Appellant moved to Honolulu, Hawaii and married a United States citizen. While living in Honolulu,
the Appellant obtained a Green Card from United States authorities. The
Appellant said that he also lived in other areas in the United States while working for
several boat-building companies.
[5] The Appellant
testified that he returned to Canada briefly in October 2005 and drove from Vancouver through
the United
States to Mexico. The Appellant said
that he had developed a health condition caused by working with chemicals in
the boat-building industry. He said that he suffers from Chronic Obstructive
Pulmonary Disease (“COPD”) and he was forced to retire because of this health
problem. The Appellant said that he wanted to find a place to retire. In
December 2005, the Appellant rented an apartment in Mexico. The Appellant did not
return to Canada until September 2009.
[6] The Appellant
entered Mexico on a six-month
Visitor’s Permit. In May 2006, the Appellant applied for and obtained a
Residence Card from Mexican officials (Exhibit A-1).
[7] On August 8, 2006
the Appellant received a lump sum retroactive payment of Old Age Security (“OAS”)
from the Government of Canada in the amount of $29,941.33.
[8] The Appellant
stated that the lump sum OAS payment covered the period from February 1998
until August 5, 2006.
[9] The Canada Revenue
Agency (the “CRA”) withheld 15 per cent of the lump sum payment or $4,491.20.
[10] The Appellant claims
that he is entitled to a refund of the amount of $4,491.20 that was withheld
from the OAS payment by Canadian tax authorities.
B. Issue
[11] The issue is whether
the Minister of National Revenue (the “Minister”) was correct in withholding
the amount of $4,491.20 from the OAS lump sum payment that was received by the
Appellant.
C. Analysis
and Decision
[12] Based upon the
evidence presented in court, I have concluded that the Appellant was a resident
of Mexico throughout the 2006
taxation year. I have also concluded on the evidence presented that the
Appellant was not a resident of Canada and was not a resident of the United States in 2006.
[13] Pursuant to Part
XIII of the Canadian Income Tax Act (the “Act”), a non‑resident
person is liable to pay a withholding tax of 25% on certain types of income
from Canada. This tax generally
applies to passive income sources including superannuation and pension
benefits.
[14] If there is not an
applicable tax treaty, paragraph 212(1)(h) of the Act provides that the
Appellant is required to pay tax at the rate of 25% on the OAS payments.
[15] Counsel for the
Respondent maintains that the Appellant was a resident of Mexico throughout 2006
and therefore the Convention between the Government of Canada and the Government of
the United Mexican States for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income (the “Canada-Mexico Tax Convention”)
applies. Article 18 of the Canada‑Mexico Tax Convention, at
paragraph 2, provides as follows:
2. Pensions
arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which
they arise, and according to the law of that State. However, in the case of
periodic pension payments, the tax so charged shall not exceed the lesser of
(a)
15 percent of the
gross amount of the payment, and
(b)
The rate determined
by reference to the amount of tax that the recipient of the payment would
otherwise be required to pay for the year on the total amount of the periodic
pension payments received by that individual in the year, if that individual
were a resident of the Contracting State in which the payment arises.
[16] The amount received
by the Appellant under paragraph (b) is calculated under section 217 of the Act
which allows a non-resident taxpayer to elect to have his tax liability
determined under Part I rather than under Part XIII. In other words, section
217 allows for the non-resident taxpayer to calculate the amount of tax that he
would be required to pay as if he were a resident of Canada. The election is made by filing a
Canadian income tax return for the year. The Appellant filed a Canadian income
tax return for the 2006 taxation year (Exhibit R-2).
[17] The election can be
beneficial to a non-resident taxpayer since it allows for Part I deductions and
credits to be taken into account in the computation of tax liability. No such
deductions can be taken under Part XIII (subsections 118(1) and (2) and
214(1)). In the Appellant’s case, the personal credit under
subsection 118(1) and the age credit under subsection 118(2) are available
to him with an election filed under section 217.
[18] Where an election is
filed under section 217 and the calculation results in a lower tax liability
than that which results under Part XIII without the election, the CRA will
assess the lower amount.
[19] Subsection 217(1)
defines “Canadian benefits” as the “… total of all [amounts] each of which is
an amount paid or credited in the year and in respect of which tax under this
Part [Part XIII] would, but for this section, be payable by the person because
of any of paragraphs 212(1)(h)…”. The OAS payment is an amount in respect of
which tax would be payable under paragraph 212(1)(h) and therefore this payment
would qualify as a “Canadian benefit”.
[20] Paragraph 217(3)(b) of
the Act stipulates how the non-resident’s “taxable income earned in Canada” (“TIEC”) for the year
will be determined.
[21] Counsel for the
Respondent said:
In summary,
paragraph 217(3)(b) deems the non-resident’s TIEC to be the greater of the
following two amounts:
(a) his TIEC for the year as determined under Division D plus his
“Canadian benefits” (subparagraph 217(3)(b)(i)); and
(b) his
world income for the year (subparagraph 217(3)(b)(ii)).
(Written Submissions,
at paragraph 18)
[22] Counsel for the
Respondent continued:
Subparagraph
217(3)(b)(i) provides that a non-resident’s TIEC for the year is to be
determined in accordance with Division D (the usual way in which a non‑resident’s
income is determined under Part I). However, for the purposes of this
subparagraph section 115 of Division D is modified so that the non‑resident’s
Canadian benefits are included in his TIEC for the year (clause 217(3)(b)(i)(A)).
(Written Submissions,
at paragraph 19)
[23] Counsel for the
Respondent said:
The Appellant’s
TIEC under subparagraph 217(3)(b)(i) is the total of his Canadian benefits. In
other words, …[it includes the] OAS payment. …
(Written Submissions,
at paragraph 20)
[24] The Appellant’s tax
liability with a section 217 election (i.e. the Appellant’s tax liability
calculated under Part I as though he were a resident of Canada) is higher than his
Part XIII tax liability of 15 per cent of the gross amount of the payment.
According to the Canada-Mexico Tax Convention, the Appellant is entitled to pay
the lower amount. In this case, this would be the withholding tax of $4,491.20.
In my opinion, the tax has been correctly withheld and assessed.
[25] The Appellant argues
that it is unfair to tax the entire OAS payment received by him in 2006 because
much of this amount is arrears relating to prior taxation years. However,
subsection 212(1) imposes a tax on amounts when they are paid. There is
no provision in subsection 212(1) for deeming amounts to have been received
at other times.
[26] While a portion of
the Appellant’s OAS payment may have related to previous years, he was not a
resident in Canada during those earlier years. Therefore, the option of having a portion of
the payments relating to the previous years taxed as if the Appellant received
them in those years does not apply in this case.
[27] In connection with
the Appellant’s argument that a portion of the OAS payment related to previous
years, counsel for the Respondent referred to the decision of the Tax Court in Heaman
v. Canada (Minister of Human Resources Development), 2006 TCC 106, [2006]
T.C.J. No. 67. In that case, Bell, J. said, at paragraph 8:
[8] There is no legislation
permitting the inclusion of income with reference to a prior period to be
included in the income of that prior period. … The amount of $2,133.01 was
clearly "received" in 2000 and is properly includable in that year.
[28] The Appellant also
referred to “fairness” in his argument. I do not have the authority to accept
an argument based upon fairness. I must interpret the words of the Act and
the applicable Tax Convention.
[29] In my opinion the Minister was correct when
he withheld the amount of $4,491.20 on the OAS payment. The appeal is dismissed,
without costs.
Signed at Vancouver, British Columbia, this 2nd day of October 2009.
“L.M. Little”
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