Zhikai Cai v. Her Majesty the Queen, [1996] 3 CTC 2724 (Informal Procedure)

Bell J.T.C.C.: — The issue is whether the Appellant, a Chinese citizen, attending university in Canada was, for his 1993 taxation year, exempt from Canadian income tax on a Canadian scholarship of $11,359 under Article 19 of the Canada — China Income Tax Agreement (1986) (“Treaty”). It reads as follows:

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.

In September 1988 the Appellant entered Canada as a student from the People’s Republic of China. In August, 1989, the Appellant applied for landed immigrant status in Canada and this status was granted to him on January 24, 1991. In 1989 a woman who since became his spouse entered Canada and subsequently obtained landed immigrant status in Canada. While attending Queen’s University in Kingston, Ontario in 1993 the Appellant received the amount of $11,359 from the Ontario Graduate Scholarship Program.

In 1991, 1992 and 1993 the Appellant made contributions to a registered retirement savings plan and in those years he and his spouse participated in the Ontario Home Ownership Savings Plan. He lived in residence at the University during all of 1993 and in 1994 purchased and moved into a house in Mississauga, Ontario.

The Appellant filed income tax returns as a resident of Canada for the 1991, 1992 and 1993 taxation years. In his 1993 return he reported the scholarship amount received and claimed a deduction of that amount. The Minister of National Revenue (“Minister”) disallowed the deduction on the basis that the Appellant was not entitled to same pursuant to subparagraph 110(l)(f)(i) of the Income Tax Act (“Act”) and Article 19 of the Treaty claiming that the amount was not an amount exempt from income tax in Canada.

Paragraph 56(l)(n) of the Act provides, generally, that there shall be included in income an amount received as a scholarship in excess of $500. Subparagraph 110(l)(f)(i) of the Act provides that a taxpayer may deduct an amount exempt from income tax in Canada because of a provision contained in a Tax Convention or Agreement with another country that has the force of law in Canada.

The Appellant and his agent took the position that Article 19 had nothing to do with the resolution of this issue. They argued that, by virtue of paragraph 2(a) of Article 4 of the Treaty, the Appellant, who testified that he had a permanent home in China, was deemed to be resident in China and that his income was taxable in China and not in Canada. Paragraph 1 of Article 4 provides that the term “resident of a Contracting State” means any person who under the laws of that State is liable to tax therein by reason of his domicile, residence, place of head office, place of management or any other criterion of a similar nature. The Appellant, although not an expert on taxation law in China, testified that he was subject to tax in China by virtue of his citizenship. Paragraph 2 of Article 4 provides that where by reason of paragraph 1 an individual is a resident of both Contracting States his status shall be determined, so far as subparagraph (a) is concerned as follows:

...he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

I do not agree that the resolution of this issue is determined by an examination of that portion of the Treaty. It must be determined by analysing Article 19 which does not instruct the application of a residence test but requires a determination of whether presence in Canada is solely for the purpose of his education or training.

Respondent’s counsel relied on the majority decision of the Federal Court of Appeal in Qing Li v. R. (sub nom. Li v. Canada), [1994] 1 C.T.C. 28, 94 D.T.C. 6059. That taxpayer, a Chinese citizen, entered Canada on a visitor’s visa issued under the Immigration Act in 1984. He applied for landed immigrant status which was granted on July 13, 1990. Sometime during 1990 he received a bursary of $14,749.92 from McGill University. The Court, on judicial review of a decision from this Court dismissing the taxpayer’s appeal from the Minister’s inclusion of the bursary in income, decided that in order to succeed under Article 19 the presence in Canada must be a temporary one. At pages 31-2 (D.T.C. 6062), Isaac, C.J. said,

Here, the Applicant was a visitor and as such he was entitled to claim the benefit of Article 19 while he retained that status in Canada. However, for reasons of his own, he chose to make application to become a landed immigrant, thus evidencing an intention to remain in Canada permanently. This intention was actualized when he was granted landed immigrant status on July 13, 1990. In these circumstances the Applicant cannot, in my view, properly invoke Article 19 of the Agreement for his benefit.

In that case the taxpayer had “conceded that after the date on which he became a landed immigrant” he was not entitled to an exemption by reason of Article 19 because he was no longer temporarily resident in Canada. However, he contended that before that date he was so entitled.

Mr. Li applied for landed immigrant status in the fall of 1987. However the Appellant here testified that he applied for landed immigrant status two months after the June, 1989 Tiananmen Square revolution in Beijing. This readily understandable action, even if followed by the granting of landed immigrant status, may not have warranted a conclusion that he was no longer present in Canada solely for the purpose of his education. However, I need not explore that proposition because, on the evidence, I have concluded that he was not present in Canada solely for that purpose. He went beyond obtaining landed immigrant status. He made contributions in 1991 to the Ontario Home Ownership Savings Plan. He made contributions in 1991, 1992 and 1993 to a Registered Retirement Savings Plan. That culminated with his purchase, albeit in the year following the taxation year in question, of a house in Canada in which he and his wife have since lived. The Appellant also described himself as a consultant and a student. I find that the cumulative effect of these facts leads to a conclusion that he, during the taxation year in question, was not present in Canada solely for the purpose of his education.

Accordingly, the appeal is dismissed.

JUDGES NOTE: With respect, I do not agree that the resolution of the issue in this case is as simple as stating that the Appellant cannot be exempt under Article 19 because he has obtained landed immigrant status. No assistance was offered by either party as to the legal effect of that status. Although there may have been other reasons for applying for that status, the Appellant testified that he had applied for same after the revolution at Tiananmen Square in Beijing which occurred in early June 1989. Although it is not necessary and perhaps not jurisprudentially appropriate for me to make a decision on that point, it seems that the quest for landed immigrant status for that reason should not disqualify a taxpayer from the exemption of Article 19. Again, with respect, I have difficulty in accepting the premise that because a student was a “visitor” and became a landed immigrant he cannot qualify for exemption under Article 19. That Article refers to a student who is or was immediately before visiting Canada a resident of China. There is, on the evidence, no doubt that the Appellant

meets that test. The question because whether the Appellant was, during 1993, present in Canada, solely for the purpose of his “education”. I have concluded that

Appeal dismissed.