Michel Lantagne v. Minister of National Revenue, [1985] 2 CTC 2146, 85 DTC 498

Tremblay, TCJ [TRANSLATION]:—This case was heard at Montreal, Quebec on August 28, 1984.

1. Issue

The issue is whether the appellant was resident in Canada in 1977 and 1978 when he was working in Niger as a co-operant under the Canadian International Development Agency (CIDA).

The appellant argued that paragraph 250(1 )(d) of the Income Tax Act (the Act), which deems a person working outside Canada under CIDA to be a resident of Canada, does not apply in his case. In his view, he was not a resident of Canada during the three months preceding the date he assumed his duties with CIDA, since he had been working for the Government of Trinidad for two years.

The respondent argued that paragraph 250(1)(d) did apply and that the appellant was resident in Canada in 1977 and 1978 and therefore subject to tax.

In the alternative, moreover, the respondent argues that even if the appellant was not resident in Canada during the said years, he was nonetheless taxable under paragraphs 115(2)(c), (e) of the Act. The appellant argues that this provision does not apply to him and that if it does apply, it applies only to 1978, because the respondent relied on it only for that year and not for 1977.

2. Burden of Proof

2.01 The appellant has the burden of showing that the respondent's assessment is incorrect. This burden of proof results not from a particular section of the Income Tax Act, but from several judicial decisions, including a judgment of the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In that decision, the Court also decided that the facts assumed by the respondent in the assessment or reassessment are presumed true until the contrary is proven. In the case at bar, the facts assumed by the respondent in his reply to the notice of appeal read as follows:

13. In assessing the appellant for the 1977 and 1978 taxation years, the respondent relied, inter alia, on the following facts:

(a) the appellant is an agricultural engineer who was employed by the Government of Canada before November, 1974;

(b) from November 1974 to November 1976, the appellant worked in Trinidad;

(c) in December 1976, while he was residing in Canada, the appellant was hired by the Canadian International Development Agency;

(d) subsequently, from December 1976 to June 1979, the appellant worked in Niger under an international development assistance program of the Government of Canada;

(e) the appellant left Niger and returned to Canada in June 1979;

(f) the appellant at no time ceased to be a resident of Canada during the years in question and he always maintained residential ties with Canada.

3. Facts

3.01 The appellant is an agricultural engineer who graduated from Laval University in 1969 and obtained his Master’s in 1971 from Collège MacDonald in Ste-Anne de Bellevue.

3.02 From 1971 to 1974, he worked in New Brunswick for the federal Department of Agriculture. Since he wanted to become involved in international work, he left for Trinidad and Tobago in November 1974. He was paid by that country an amount commensurate with its standard of living but hardly comparable to the salaries paid at that time in Canada. This caused him some financial hardship. When he was informed of a possibility of working in Niger as a technical adviser under CIDA in the fall of 1974, he applied for the position and obtained it.

3.03 The appellant had his family with him in Trinidad and Tobago. He left no personal or real property in Canada. He did not belong to any professional associations or Canadian organizations. The only tie he maintained with Canada was a bank account in a Quebec caisse populaire. He did not return to Canada during his stay in Trinidad.

3.04 At the end of November 1976, when he left Trinidad, he left all his personal and household effects behind, as CIDA had promised to transport them directly to Niger. During his short stay in Canada, until about December 26, 1976, he stayed with his mother in Rosemont, Montreal, Quebec. In mid December, he signed a written contract confirming a previous verbal agreement concluded with CIDA (Exhibit 1-1, p 17). During this visit, a claim was made for family allowances. Such benefits were received in 1977, 1978 and 1979. They were deposited in his Montreal bank account.

3.05 The contract with CIDA provided for a two-year stay. At the end of 1978, however, the contract was extended, and he returned to Canada in 1979. During this time, the cheques issued by CIDA to his order were deposited in his Montreal bank account.

3.06 In Niger, he worked with a multi-disciplinary team of four Canadians called the Bureau of Program Development. The appellant's duties are described in Annex A of the CIDA contract, which reads as follows:

Annex A The Coopérant shall, in a careful and professional manner, perform the following duties and services:

work within the Bureau of Program Development of the Ministry of Rural Development, joining the Canadian team that is already in place;

co-operate with the Rural Engineering Service and, in particular, review plans for hydro-agricultural improvements and various construction projects in rural areas;

without limiting the foregoing:

under the supervision of the agro-economist who co-ordinates the multidisciplinary team, he will

— develop and propose guidelines for general development policy in respect of rural development;

— review and co-ordinate programs and projects related to these guidelines;

— monitor, in liaison with the Ministry of Planning, the compatibility of such programs and projects with national objectives and co-ordinate all activities relating to rural development in the context of government planning and programming;

— review statutes, regulations and administrative directives relating to the organization of rural production;

— analyse the rural economy on the basis of available statistical data;

— identify and evaluate projects in the areas of his expertise (rural sector); — prepare technical project components in the area of his expertise;

— participate in surveys and studies in the interior of the country;

— review MRD program and project performance reports and activity reports, summaries and operating accounts of agencies and groups involved in rural development in this country;

— monitor the implementation of such programs and projects;

— determine the cost of rural development operations and project marketing;

— monitor and adjust the objectives of these agencies to make them compatible with MER/C;

— prepare and explain the Minister’s decisions in the area of rural development;

— perform other professional duties related to the Ministry’s rural development activities;

— prepare a quarterly activity report for the CIDA project leader.

4. Act — Case law — Analysis

4.01 Act

The main provisions of the Income Tax Act relied on by the parties are paragraphs 115(2)(c), (e) and 250(1)(d). They read as follows:

115. (2) Where, in a taxation year, a non-resident person was

(c) an individual who had, in any previous year, ceased to be resident in Canada and who was, in the taxation year, in receipt of remuneration in respect of an office or employment that was paid to him directly or indirectly by a person resident in Canada,

(e) [since this paragraph is not in issue, there is no need to cite it.]

250. (1) For the purposes of this Act, a person shall, subject to subsection (2), be deemed to have been resident in Canada throughout a taxation year if

(d) he performed services, at any time in the year, in a country other than Canada under a prescribed international development assistance program of the Government of Canada and he was resident in Canada at any time in the 3 months’ period preceding the day on which such services commenced.

4.02. Case law

The cases and scholarly analysis to which counsel referred the Court are as follows:

1. Interpretation Bulletins IT-221 and IT-221R2;

2. the Family Allowances Act, 1973 (excerpts);

3. the Table of Public Statutes (December 1979);

4. Family Allowances Regulations — Amendment (SOR/78-505);

5. Family Allowances Regulations — c 642;

6. William R Morton v MNR, [1976] CTC 2463; 76 DTC 1275;

7. Rémi Bouchard v MNR, [1978] CTC 2071; 78 DTC 1074;

8. Donald M Ladd v MNR, [1978] CTC 3071; 78 DTC 1775;

9. Charles A Marois v MNR, [1979] CTC 2174; 79 DTC 18;

10. Guy Rajotte v MNR, [1979] CTC 2555; 79 DTC 436;

11. Wolfgang Hauser v MNR, [1978] CTC 2728; 78 DTC 1532.

4.03 Analysis

4.03.1 Residence

The principles and factors have been explained on countless occasions by the courts. In Bouchard and Rajotte, cited above, they were summarized as follows:

Principles

1. Residence is neither domicile nor citizenship.

2. A person may even have two places of residence.

Factors

1. The taxpayer's background: his native country, his general life-style, his habits;

2. the links that a person preserves with the country in question, such as: immovable properties (number and value, manner of use), family home, vacation site, storage of furniture, bank account, membership in a religious group, social club or professional organization;

3. the presence of the husband or of the family and the husband in a given location in the course of the year in question;

4. mere intention to return to the country does not necessarily settle the matter of residence, even though it may be essential in determining domicile;

5. the motives or reasons offered to explain absence from or presence in a given location during a taxation year;

6. the fact of travelling as a tourist or always remaining in a given location;

7. the length of time spent in a given place during the taxation year in question and previous years;

8. the regularity with which the taxpayer returns to his native country.

In the Supreme Court case of Thomson v MNR, [1946] CTC 51 at 63; 2 DTC 812 at 815, Rand, J emphasized that the distinction between residence and non-residence is often only a matter of degree:

The gradation of degrees of time, object, intention, continuity and other relevant circumstances shows, I think, that in common parlance “residing” is not a term of invariable elements, all of which must be satisfied in each instance. It is quite impossible to give it a precise and inclusive definition. It is highly flexible and its many shades of meaning vary not only in the contexts of different matters, but also in different aspects of the same matter. In one case it is satisfied by certain elements, in another by others, some common, some new.

4.03.2. Residence in Trinidad and Tobago

In light of the facts set out above in para 3.03 and the factors listed in the preceding paragraph, the Court has no hesitation in finding that the appellant was not resident in Canada between November 1974 and November 1976. He was a resident of Trinidad. The only tie that he maintained with Canada was a bank account.

4.03.3 The Court also has no hesitation in concluding that his brief stay in Canada in December 1976 was merely a passing visit with nothing to indicate that his residence in future would be Canada. His personal and household effects were transferred directly from Trinidad to Niger. His claim for unemployment insurance was more to obtain financial aid than an indication of a desire to establish residence in Canada. His 1976 tax return, filed in March 1977, stated that he resided in Niger as of December 31, 1976.

Accordingly, the Court makes a preliminary finding under paragraph 250(1)(d) that the appellant did not reside in Canada on any date during the three-month period that preceded the day on which he began to work for CIDA. Secondly, it finds that the presumption in this provision does not apply to the appellant.

4.03.4 During his stay in Niger, his only tie with Canada was the bank account in which the CIDA payments and family allowances were deposited (para 3.04 and 3.05). Taken alone this circumstance does not constitute enough of a tie to make him a resident of Canada, even if the appellant was born in this country and lived here until 1974.

4.03.5 Section 115(2)(c), (e)

The respondent argues that even if the appellant was not resident in Canada in the years in question, his income from office and employment is still taxable because of paragraph 115(2)(c) of the Act, which, under paragraph 115(2)(e), provides a formula for computing this income.

The appellant disputes this argument on the grounds that the income he received was not “in respect of an office or employment”. The appellant regards himself as an independent contractor, in the business of providing international aid.

4.03.6 Counsel for the appellant referred the Court to Wolfgang Hauser, a 1978 decision of Lucien Cardin, then Chairman of the Tax Review Board. He applied the tests often used by the courts, namely: (a) the control test, (b) the integration test, (c) the economic reality test and (d) the specific result test.

These tests, like many others used by the courts, do not apply in every case. The distinction between “employment” and “business” may be applied mutatis mutandis to the above-cited passage from Rand, J in respect of the distinction between “residence” and “non-residence”.

(a) In the case at bar, the control test is not very meaningful. The appellant is a professional, which implies the freedom to exercise his own judgment and to decide how to perform his work. Many professionals, such as doctors, lawyers, engineers and so on, are on salary, however;

(b) the integration test does not seem applicable;

(c) the economic reality test, which bears on the financial risks incurred by the independent contractor, does not favour the appellant. All expenses were paid, and he received an annual salary of $33,000 paid on a monthly basis. In sum, he ran no risk;

(d) the specific result test also does not seem to work in the appellant's favour. The point of his work was not to achieve some specific, precise determined goal. Instead, his job was to advise, co-ordinate and monitor certain programs as part of the activities of the Niger Ministry of Rural Development. This is an open-ended task, and work of a similar nature would continue, even after the appellant’s departure.

As the specific result test is usually applied, an independent contractor is not personally bound to the primary contractor. What matters is the result. In this case the work was to be performed by the appellant personally.

4.03.7 The appellant argued that CIDA regarded the co-operants as independent contractors. In subsequent contracts, CIDA made this clear (uncompleted form: Exhibit A-3). However, the Court cannot accept an uncompleted form which does not specifically apply to the appellant. Counsel for the respondent also referred to Ladd (para 4.02) in which the appellant, who was an independent contractor according to his contract with CIDA, argued that he did not exercise an office or employment. Taylor, J, then a member of the Tax Review Board, found that although the contract used the term “independent contractor”, the substance of the contract was that Mr Ladd was an employee on salary. He relied mainly on Article X, which is the same Article X found in the appellant Lantagne’s contract. This provision reads as follows:

Article X The Expert shall not assign, transfer, pledge or make other disposition of the present Agreement or of any part of the work under the present Agreement, except with the prior written consent of the President.

According to Taylor, J, this Article determines that the contract represents a contract for individual services and not merely the assumption of an obligation, as would be the case for a contract with an independent contractor.

In the case at bar, it is also appropriate to refer to Article V (Exhibit 1-1, p 18), which seems indicative of the nature of the appellant’s duties:

Article V Annual leave

The Expert will be entitled to vacation leave at the rate of twenty work days per year of service. Furthermore, any and all leave entitlements shall be dealt with and disposed of on an annual basis unless otherwise authorized in writing by the President.

Such a term is clearly incompatible with the status of independent contractor but not that of an employee on salary.

The Court must accordingly conclude that paragraph 115(2)(c) does apply, since the other elements of this section are not in dispute.

4.03.8 The appellant, however, has argued that the respondent relied on paragraphs 115(2)(c), (e) only in reassessing 1978 and, therefore, even if this provision applied there, it could not apply to the reassessment for 1977.

The respondent, however, argued that the said provision was relied on in the reply to the notice of appeal for both years.

The Court was unable to find any reference to subsection 250(1) or to subsection 115(2) in the documents filed with the notices of reassessment, issued November 16, 1979 and July 3, 1981 for the years in question (Exhibit A-1). The only reference to subsection 250(1) was in the notices of assessment dated September 7, 1979.

In Brewster ([1976] CTC 107 at 111; 76 DTC 6046 at 6049), Gibson, J held that the Minister was entitled to rely on facts other than those alleged in the notice of assessment, but if he did so, the burden of proof would shift to him.

In order to rely on paragraphs 115(2)(c), (e), the respondent must assume that the appellant was a CIDA employee.

The Court notes at this stage in its judgment, however, that the respondent has not claimed that the appellant was an employee of CIDA in the facts assumed and reproduced above in para 2.02. This fact is crucial, however, if paragraphs 115(2)(c), (e) are to be relied upon. Since the appellant also rebutted the respondent's allegations regarding his assumed residence and the application of paragraph 250(1)(d), the Court should, at first sight, allow the appeal.

The respondent may amend the facts he has assumed in an appeal before the Federal Court — Trial Division, by simply adding that the appellant was an employee of CIDA during the years in question. The Court see no point in allowing an appeal on a mere matter of form.

It should not be forgotten that an appeal de novo lies to the Federal Court — Trial Division. Accordingly, the parties are entitled to plead and put in evidence new facts.

A similar spirit pervades subsection 14(2) of the Tax Court of Canada Act, which deals with courtroom procedure. It reads as follows:

14 (2) Notwithstanding the provisions of the Act under which an appeal is made, the Court is not bound by any legal or technical rules of evidence in conducting a hearing for the purposes of that Act, and all appeals shall be dealt with by the Court as informally and expeditiously as the circumstances and considerations of fairness permit.

Once again, the Tax Court of Canada will not grant or dismiss an appeal on a mere matter of form when the weight of the evidence is to the contrary.

4.03.9 The reassessments are therefore upheld and the appeal is dismissed.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.