0001
TAX COURT OF CANADA
____________________________________
Court Number 2005-4329(IT)I
BETWEEN:
JAMES R. SMYTH
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
______________________________________________
DECISION
February 2, 2007
Held at the Federal Court of Canada
Edmonton, Alberta
Volume 1
_______________________________________________
TAKEN BEFORE:
The Honourable Mr. Justice Brent Paris
0002
APPEARANCES
TAKEN BEFORE:
The Honourable Mr. Justice Brent Paris
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(No Counsel) Appeared for the
Appellant
Darcie E. Charlton, Esq. Appeared for the
Respondent
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Irene Anselmo Court Registrar
Deanna Jackson, CSR(A) Realtime Reporter
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0003
TABLE OF CONTENTS
PAGE
APPEARANCES 2
OPENING REMARKS 4
DECISION 4
CLOSING REMARKS 16
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0004
01
(PROCEEDINGS COMMENCED AT 12:54 P.M.)
02 THE
REGISTRAR: Order, all rise.
03
The Court will now
04 render a
decision in Appeal
05 Number
2005-4329(IT)I between James R. Smyth,
06 the
appellant, and Her Majesty the Queen, the
07
respondent.
08 JUSTICE
PARIS: Thank you. Please be
09 seated.
10
This is an appeal from a
11
reassessment of the appellant's 2001 and 2002
12 taxation
years by which the Minister of
13 National
Revenue disallowed his claim for the
14 overseas
employment tax credit. The appellant
15 claimed an
overseas employment tax credit of
16 $11,153 in
2001, and $38,448 in 2002 in respect
17 of his
employment income earned in Kosovo where
18 he provided
police services within the context
19 of the
United Nations Mission there.
20
The issues in this
21 appeal are
whether the appellant qualifies
22 under
23 Section
122.3 of the Income Tax Act for an OETC
24 in these
years, and if not, whether any
25 deduction
is available to him under
0005
01 paragraph
110(1)(f) of the Act.
02
The facts relied upon by
03 the
Minister in reassessing the appellant are
04 set out in
paragraph 10 of the amended
05 reply to
notice of appeal and will form part of
06 these
reasons. (annexed as schedule 1)
07
The respondent has
08 indicated
in the amended reply that the
09 appellant
provided police services in Kosovo
10 rather than
Bosnia Herzegovina as originally
11 assumed.
This was born out by the evidence,
12 and nothing
turns on this minor error in the
13
assumptions.
14 Section
122.3 sets out
15 several
conditions that must be met in order
16 for a
taxpayer to qualify for the tax credit.
17 The
relevant parts of Section 122.3(1)
18 read as
follows:
19 If
an individual is resident in
20 Canada in a taxation year and,
21
throughout any period or more than 6
22 consecutive
months that began before
23
the end of the year and included any
24 part
of the year...
25
(a) was employed by a person who was a
0006
01
specified employer, other than for the
02
performance of services under a
03
prescribed international development
04
assistance program of the Government
05 of
Canada, and
06
(b) performed all or substantially all
07
the duties of the individual's
08
employment outside Canada
09 (i)
in connection with a contract
10
under which the specified employer
11
carried on business outside Canada
12
with respect to...
13
(C) any prescribed activity, or
14 (ii)
for the purpose of obtaining, on
15
behalf of the specified employer, a
16
contract to undertake any of the
17
activities referred to {above}..."
18
Section 122.3 then sets out the
19 method of
calculating the OETC.
20
The first question that
21 must be
decided is by whom the appellant was
22 employed
while working in Kosovo. The
23 appellant
argues that he was employed by the UN
24 in Kosovo
and that his employment relationship
25 with the
Edmonton Police Service was severed
0007
01 prior to
his commencing work in Kosovo.
02
He referred to the
03 evidence of
two witnesses from the Edmonton
04 Police
Service who had participated in the same
05 UN Mission
in Kosovo, as well as to his own
06 evidence
that the work done there was outside
07 the
collective agreement between the Edmonton
08 Police
Service and Edmonton Police Association
09 and that,
in particular, the terms of the
10 collective
agreement relating to working hours
11 and working
conditions were not adhered to.
12
The appellant also
13 referred to
a document, Exhibit A-4, entitled
14
"Certification of Employment," issued by the
15 assistant
director of administration, UN
16 Mission in
Kosovo Police, that certified that
17 the
appellant was employed as a civilian police
18 officer by
the UN Mission in Kosovo. It also
19 stated the
appellant was compensated at a rate
20 of $71 US a
day while employed with the UN
21 Mission in Kosovo Police.
22 I
cannot agree with the
23 appellant's
arguments on this point. The
24 evidence of
Sergeant Glen Hayden of the
25 Edmonton
Police Service, who was a member of
0008
01 the
Edmonton Police Association executive, was
02 that the
appellant did not cease to be a member
03 of either
the Edmonton Police Service or the
04 Edmonton Police Association while with the
05 UN
Mission.
06
The documentary evidence
07 shows the
appellant received his regular salary
08 from the
Edmonton Police Service and was
09 entitled to
certain benefits provided in the
10 collective
agreement. Those benefits included
11 credit for
calculating his seniority and
12 pension in
respect of time worked in Kosovo and
13 coverage
under medical and dental plans.
14
I can see nothing in the
15
documentation to suggest that the appellant's
16 employment
with the Edmonton Police Service was
17 severed at
any point in the years in issue. It
18 appears,
rather, the appellant was permitted
19 within the
course of his employment to
20 participate
in the Kosovo Mission under the
21 conditions
set out in Exhibit R-1, the letter
22 of
agreement between the Edmonton Police
23 Service,
the RCMP, and the appellant and his
24 coworker,
Constable Stolarchuk.
25
The fact that the
0009
01 Edmonton
Police Service was a signatory to that
02 agreement
is indicative of the ongoing
03
relationship between the individual
04
participants and the EPS. And in particular, I
05 refer to
paragraph 2.1 and 2.2 of the agreement
06 by which
the Edmonton Police Service agrees to
07 provide the
participants as part of the
08 UN Mission
and to make them available for the
09 Mission.
10
The Edmonton Police
11 Service
also retained control over the
12
participants in the event that they failed to
13 comply with
the UN operational guidelines for
14 the UN
Police Force.
15
The fact that the
16 Edmonton
Police Service was reimbursed the cost
17 of the
participant's salary and benefits by the
19 RCMP does
not alter the pre-existing employment
20
relationship, and I note that the agreement
21 also
provided that the participants would not
22 be
considered employees of the RCMP.
23
With respect to the
24
certification of employment issued by the
25 United
Nations Mission in Kosovo, Exhibit A-4,
0010
01 there is no
evidence as to the basis on which
02 the
certification was made. The document does
03 not purport
to be a contract of employment, and
04 no contract
between the appellant and the UN
05 was
produced at the hearing.
06
To the extent that
07 Exhibit A-4
contradicts the arrangements made
08 by the Edmonton Police Service, the RCMP, and
09 the
appellant himself regarding the his
10
participation in the mission as set out in the
11 letter
agreement, I would attach little weight
12 to it. It
appears to have been prepared for
13 limited
purpose and cannot be taken to
14 displace
the letter agreement without the
15 express
consent of all of the parties to the
16 letter
agreement.
17
The appellant may have
18 taken on
duties and responsibilities outside of
19 those of a
normal police officer working in
20 Edmonton, but this was by agreement between
21 Edmonton
Police Service and the appellant.
22 Similarly,
the appellant agreed to perform the
23 work
according to the conditions set out in the
24 UN
guidelines.
25
There is nothing before
0011
01 me to show
that the appellant was prevented
02 from
agreeing to these terms and conditions
03 while
continuing his employment with the
04 Edmonton Police Service. Therefore, I find
05 that the
appellant was in fact employed by the
06 Edmonton
Police Service while performing his
07 duties in
Kosovo.
08
The next matter to be
09 decided is
whether the work performed by the
10 appellant
in Kosovo was performed in connection
11 with a
contract under which the Edmonton Police
12 Service
carried on business outside Canada as
13 required by
Subsection 122.3(1) of the act.
14
The appellant argues
15 that it is
sufficient for the Edmonton Police
16 Service to
provide services in connection with
17 a contract
under which the RCMP carried on
18 business
outside Canada. He relies in this
19 respect on
the decision of this Court in
20 Gonsalves v.
The Queen, 2000 DTC 1491.
21
The difficulty with this
22 position is
that in order for either the
23 Edmonton
Police Service or the RCMP to be found
24 to be
carrying on business, there would need to
25 be evidence
that they were undertaking the
0012
01 policing
activities in Kosovo for profit. This
02 requirement
flows from the Federal Court of
03 Appeal decisions in Dansereau v. The Queen, [2001]
F.C.J. No. 1560
04 and Timmins v. The Queen, [1999] 2 F.C. No. 563. This profit must
05 be a
pecuniary profit and not a notional
06 benefit as
suggested by the appellant.
07
There is nothing to
08 suggest
that the Edmonton Police Service or the
09 RCMP
participated in the policing activity in
10 Kosovo for
a pecuniary or financial profit.
11 Therefore,
the appellant's work in Kosovo does
12 not meet
the conditions set out in
13 subparagraph
122.3(1)(b)(i) of the Act.
14
Furthermore, there is no
15 evidence to
show that the policing work in
16 Kosovo was
a prescribed activity within the
17 meaning of
sub subparagraph 122.3(1)(b)(ii)(c),
18 which
requires that the work be performed in
19 connection
with a contract with United Nations.
20 I cannot
accept the appellant's suggestion that
21 the
documents entered in evidence are
22 sufficient
to show such a contract existed.
23
The basis and terms on
24 which the
Canadian police officers were made
25 available
to the UN has not been shown, and it
0013
01 is not open
for me to speculate as to the
02 nature of
those agreements.
03
For these reasons, I
04 find that
the appellant's employment in Kosovo
05 does not
meet the conditions set out in
06
subparagraph 122.3(1)(b)(i) of the Act, and he
07 is not
entitled to the OETC for 2001 and 2002.
08
While the appellant did
09 not present
any arguments to support a claim
10 for
deduction under paragraph 110(1)(f) of the
11 Act,
he did raise the matter in his Notice of
12 Appeal, and
counsel for the respondent
13 addressed
the point.
14
I agree with the
15 respondent
that no deduction under that
16 provision
is available. I have already found that the
17 appellant
was employed by the Edmonton Police
18 Service
during the relevant period, and
19 therefore,
his income from employment does not
20 fall within
110(1)(f)(iii), which is income
21 from
employment with a prescribed international
22
organization. Furthermore,
25
subparagraph 110(1)(f)(v) was not added to the
0014
01 Act
until 2005 and is only applicable to
02 taxation
years after 2003.
03
The appellant also
04 challenges
the interest and penalties assessed
05 by the
Minister in this case. The appellant
06 points out
that he claimed the credit on the
07 advice of
his employer and, in particular, upon
08 the advice
of Daniel Jones who heads the
09
international peacekeeping policing program at
10 the Edmonton Police Service.
11
Jones also was one of
12 the first
members of the Edmonton Police
13 Service to
serve in Kosovo. Jones gave
14 evidence
that he made inquiries at the Edmonton
15 CRA office
as to whether he was entitled to the
16 overseas
employment tax credit for income he
17 earned
while working in Kosovo under the same
18 program as
the appellant later worked and was
19 told he
qualified.
20
Jones, on behalf of the
21 Edmonton
Police Service, subsequently advised
22 other
participants that they were able to claim
23 the
credit. Evidence was also given by
24 Constable
Stolarchuk that there was a great
25 deal of
confusion at the CRA over her claim for
0015
01 the OETC
which was initially disallowed, then
02 allowed,
and finally disallowed again.
03
There is ample
04
jurisprudence to the effect that the Minister
05 is not
bound by the representations of his
06 employees,
and the Court does not have the
07
jurisdiction to order that penalties and
08 interest be
reduced except where the act --
09 where the
appellant has shown that those
10 amounts
were not calculated and imposed in
11 accordance
with the provisions of the
12 Act.
13 The
appellant did not submit
14 that the
penalties and
15 interest
were not in accordance with the Act
16 but suggested
that, as a matter of
17 equity,
they should be deleted. Unfortunately,
18 I do not
have the power to do that. I can,
19 however,
express my opinion that this would be
20 an
appropriate case for the waiver of penalty
21 and
interest under the provisions of the
22 fairness
package for the period preceding the
23 reassessment,
given that the appellant's claim
24 for the
overseas employment tax credit was
25 based on
erroneous advice provided by the CRA.
0016
01
For all these reasons,
02 the appeal
is dismissed. Thank you.
03 MR.
SMYTH: Thank you, Your Honour.
04 THE
REGISTRAR: This case is now closed.
05
Court will resume at
06 two o'clock
this afternoon.
07
(PROCEEDINGS CONCLUDED AT 1:07 P.M.)
08
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10
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12
13
14
15
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23
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25
SCHEDULE 1
10. In so
reassessing and confirming the tax of the Appellant, the Minister relied on the
same assumptions of fact, as follows:
(a) throughout the 2001 and 2002 years, the Appellant
was a resident of Canada;
(b) during the 2001 and 2002 years, the Appellant was
employed by the Edmonton Police Service, (“EPS”);
(c) EPS entered into an agreement with Her Majesty the
Queen in right of Canada as represented by the Royal Canadian Mounted Police,
(the “RCMP”) to provide police services on international peace support
operations, (the “Agreement”);
(d) pursuant to the Agreement, the Appellant provided
police services in Bosnia-Herzegovina from November 2, 2001 to August 2, 2002;
(e) the Appellant received employment income from EPS in
2001 and 2002 of $82,840.00 and $67,851.00 respectively;
(f) the Appellant did not receive any other employment
income in the 2001 and 2002 years, other than the amounts received from the
EPS;
(g) the Appellant claimed the OETC based on employment
income earned while in Bosnia-Herzegovina of $11,153.00 in 2001 and $38,448.00
in 2002;
(h) neither the RCMP or the EPS carried on business
outside of Canada; and
(i)
the EPS did not have a contract with the United
Nations.
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