Chun Gu v. Minister of National Revenue, [1991] 2 CTC 2093

Bonner, T.C.J.:—This is an appeal from an assessment of income tax for the 1988 taxation year. At issue is the question whether salary received by the appellant during the year is exempt from taxation by virtue of Article 19 of the Canada-China Income Tax Agreement Act, 1986, S.C. 1986, c. 48. Article 19 reads:

(a) In English

Payments which a student, apprentice or business trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that Contracting State.

(b) In French

Les sommes qu’un étudiant, un stagiaire ou un apprenti qui est, ou qui éait immédiatement avant de se rendre dans un État contractant et qui séjourne dans le premier État contractant à seule fin d'y poursuivre ses études ou sa formation, reçoit pour couvrir ses frais d’entretien, d'études ou de formation ne sont pas imposables dans cet État contractant.

The appellant gave evidence as to the circumstances in which the salary was earned. I may note at this point that I have absolutely no doubt that the appellant's testimony was truthful and complete in every respect. He was born in the Peoples’ Republic of China. He attended Wuhan University in that country and completed his Bachelor of Laws degree. After receiving the degree, he made application under a program of the Government of China which offered financial assistance to students to enable them to pursue postgraduate studies abroad. The application was successful and with the benefit of assistance under the program he was able to attend Dalhousie University in Nova Scotia where he received a Master of Laws degree in September of 1985. At that point, financial assistance under the program ended.

The appellant decided to pursue a doctoral program in law and, to enable him to do so, he sought financial assistance from Canadian sources. In the Fall of 1985, he commenced studies at the University of Toronto as a full-time graduate student in international trade law. The university awarded him a scholarship which covered tuition plus living expenses at the rate of $900 per month. In his second year as a full-time student in that program, that is to say the 1986-1987 academic year, he was supported by a similar scholarship granted by the Government of Ontario.

Following the end of the 1986-1987 academic year, the appellant found it necessary to take employment in order to secure the funds required to complete the doctoral program. He was not entitled to practice law in Canada and thus he applied to law firms for employment not as a lawyer but as a trainee. He was employed by the Toronto law firm of Fraser and Beatty on a full-time basis during the period from September of 1987 to September of 1988. As well, during the 1987-1988 academic year the appellant continued his doctoral studies on a part-time basis. The salary received during 1988 from employment by Fraser and Beatty forms part of the amount in dispute.

In September of 1988, the appellant continued the program at the University of Toronto with the assistance of a scholarship granted by the Government of Ontario. During the period from September of 1988 to the end of that calendar year, the appellant worked on a part-time basis for Fraser and Beatty. The salary received during the September 1988 to December 31, 1988 period forms the remainder of the income in issue. The respondent treated the scholarship moneys received from the Government as exempt under Article 19 of the Canada-China Agreement.

The appellant’s work at Fraser and Beatty involved assisting lawyers in processing transactions which, for the most part, were international in scope. In addition, he interpreted at meetings between lawyers and Chinese-speaking clients and he translated documents and other material. The appellant described his position as a foreign student trainee.

It was common ground that the appellant was a resident of China from the time of his birth until the end of 1988 and that until that time, he was present in Canada solely for the purpose of his education.

In argument, counsel for the appellant submitted first that tax conventions are to be liberally interpreted in the interest of the comity of nations. In this regard, she referred to the following passage from Saunders v. M.N.R. (1954), 11 Tax A.B.C. 399; 54 D.T.C. 524 at 402 (D.T.C. 526) app'd in Canadian Pacific Ltd. v. The Queen, [1976] C.T.C. 221; 76 D.T.C. 6120 at 245 (D.T.C. 6134) (EC.A.):

The accepted principle appears to be that a taxing Act must he construed against either the Crown or the person sought to be charged with perfect strictness—so far as the intention of Parliament is discoverable. Where a tax convention is involved, however, the situation is different and a liberal interpretation is usual, in the interests of the comity of nations. Tax conventions are negotiated primarily to remedy a subject's tax position by the avoidance of double taxation rather than to make it more burdensome. This fact is indicated in the preamble to the Convention. Accordingly, it is undesirable to look beyond the four corners of the Convention and Protocol when seeking to ascertain the exact meaning of a particular phrase or word therein.

She submitted too that the object and spirit of Article 19 of the Canada-China Agreement was to provide relief from Canadian tax for those who come to Canada for their education. In this regard, she pointed to Article 20 of the O.E.C.D. model convention which reads:

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not he taxed in that State, provided that such payments arise from sources outside that State.

She noted that the proviso at the end of Article 20 is not present in the Canada- China Agreement and submitted that the proviso was omitted in order to broaden the application of the exemption to students from China. Further, she submitted that in Article 19 the words ”. . for the purpose of his maintenance, education or training. . .” follow immediately after and therefore modify the word "receives". She concluded from this circumstance that Article 19 has regard to the purpose of the payee. In the event of any ambiguity, she submitted, the object and spirit of Article 19 require that the payment in question be treated as exempt. Counsel pointed to evidence that the salary received by the appellant from Fraser and Beatty was used by him for the purpose of maintaining himself and his family while carrying on with his education. Finally, counsel submitted that the word "payments" as used in Article 19 is very broad and that it is inconsistent, in light of the intent of Article 19 to provide relief to students, to interpret the article as extending only to scholarships and similar payments and not to all payments received for the purposes named.

On the other hand, counsel for the respondent, while not suggesting that Article 19 should not be given a liberal interpretation, submitted that the language of the Article is not so broad as to include payments of salary or wages. The amounts in dispute, he said, were not received for any purpose named in Article 19 but rather as payments of salary. He noted that the language of Article 19 refers to "payments which a student. . . receives for the purpose of his maintenance, education or training . . .” and not to "payments which a student receives and later spends for the purpose of his maintenance, education or training . . .”. With great candour, however, he pointed to Article 15 of the Canada-China Agreement, and in particular to paragraph 1 which reads as follows:

Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Contracting State.

That provision, he stated, gave him some difficulty because there would have been no need to make Article 15 subject to the provisions of Article 19 if Article 19 had not been intended to embrace salaries, wages and other similar remuneration.

In seeking the meaning of a provision in an international treaty, it would undoubtedly be wrong to apply strict rules of interpretation. On the other hand, one must not, in an attempt to achieve what one conceives is or ought to be the object and purpose, ignore or artificially extend the meaning of the language employed by the signatories to the treaty. In my view, Article 19 looks not to payments received by a person who just happens to be a student, apprentice or business trainee but rather to payments designed in some way to meet financial needs associated with membership in one of the named classes of persons. The English and French versions of Article 19 may usefully be compared, especially the words ”. . . receives for the purpose of his maintenance, education or training . . .” and the words ”. . . reçoit pour couvrir ses frais d'entretien, d'études ou de formation . . .”. That language is quite unsuited to describe a payment of ordinary salary no matter how the recipient ultimately spends it. The language suggests that the payments must in some way be related to the recipient's maintenance costs, education costs or training costs. Payments are not received to cover costs of a specified class simply because the recipient ultimately spends the money to meet costs of the type named.

In my view, Article 15 of the treaty creates no difficulty. A payment of the sort contemplated by Article 19 may take the form of salary or wages. It is not at all unusual to fix the wages of an apprentice or the salary of a business trainee in relation not to the normal dictates of the job market, but rather to the need of the recipient to maintain himself during the period of training. Thus it is not inappropriate to create an exception to the Article 15 rule for payments of the sort described in Article 19 which take the form of salaries and wages.

The payments in issue are "payments of ordinary salary" received by a person who happens to be a student and thus they do not fall within the ambit of Article 19. The appellant did say that he was hired as a trainee but there was no suggestion that “trainee” was anything more than a general description of his position and that training was one of his objectives on seeking employment. There was no suggestion that the salary paid by Fraser and Beatty was in any way fixed in relation to the appellant's need to meet his maintenance or educational costs. For the foregoing reasons the appeal will be dismissed.

Appeal dismissed.