Section 118.94

In 2014, the taxpayer, who was an Irish national and resident, earned $32,728.52 in employment income from working in Fort McMurray, Canada for a few weeks, and also received the euro equivalent of $23,002.37 from the Irish government, mostly as means-tested assistance. In filing his 2014 return, the taxpayer claimed credits of $28,717, whose availability turned on whether he satisfied the condition in s. 118.94 that substantially all of his income for the year was included in computing his taxable income earned in Canada for the year.

In finding that the assistance received by the taxpayer from the Irish government was “a social assistance payment made on the basis of a means, needs or income test” described in s. 56(1)(u), C Miller J noted (at para. 9) that there was no authority for the argued proposition “that because Mr. Kenny did not have to report the social assistance payments as income in Ireland, they should not be considered income for purposes of section 118.94 ,” and then stated (at para 12):

I am unable to find anything in the legislation that provides that these foreign social assistance payments do not constitute income.

After noting that, on this basis, the Canadian employment income was approximately 60% of the taxpayer’s income for 2014, he stated (at para 18-19):

… [C]ases have relied on percentages as low as 76% to be considered substantially all. In Mr. Kenny’s case, I would be stretching “substantially all” beyond any measure of elasticity if I concluded that 60% represented “substantially all”. It certainly reflects a majority but that is not the same as substantially all.

I conclude Mr. Kenny has been caught by the application of section 118.94 of the Act and is not entitled to tax credits beyond what the Minister has allowed. …

The taxpayer sought to claim a medical expense tax credit in respect of 2008, in which he was a US resident. In the US, the taxpayer had a $169,767 capital loss and $61,000 of other income (interest, dividends, pensions and IRA distributions), but only $3000 of the capital loss was deductible for US taxation purposes, resulting in a US income of $58,000. He also had a $113,692 capital gain from the disposition of taxable Canadian property. The taxpayer argued that he did not have any income in the US, as the capital loss exceeded his other US-source income, so that he satisfied the requirement in s. 118.94 that taxable income earned in Canada (his taxable capital gain from the disposition of taxable Canadian property) represented all or substantially all of his income for the year.

Webb J. dismissed the taxpayer's appeal.

The determination under s. 3 of the taxpayer's income for the year was not based on whether the income was earned inside Canada or outside Canada (para. 11). As the taxpayer's taxable capital gain did not exceed his allowable capital loss for the year, there was no inclusion in his income under s. 3(b) and his only income for the year was his US source income. As no part of the taxpayer's income for the year (equal to this US source income of US$61,000 (Cdn.$65,000)) was included in the taxpayer's taxable income earned in Canada (his taxable capital gain of $57,000 from disposing of taxable Canadian property), he did not satisfy the test in s. 118.94 that all or substantially all of his income for the year was included in computing his taxable income earned in Canada (para. 24).

The taxpayer, who received approximately 80% of his income in the form of Public Service Management Insurance Plan disability payments, was found to receive "all or substantially all" of his income in such form for purposes of s. 118.94.