Date: 20040527
Dockets: A-444-03
Citation: 2004 FCA 206
CORAM: DÉCARY J.A.
SEXTON J.A.
BETWEEN:
PAMELA ALLCHIN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, on May 17 , 2004
Judgment delivered at Ottawa, Ontario, on May 27, 2004
REASONS FOR JUDGMENT BY: MALONE J.A.
CONCURRED IN BY: DÉCARY J.A.
SEXTON J.A.
Date: 20040527
Dockets: A-444-03
Citation: 2004 FCA 206
SEXTON J.A.
MALONE J.A.
BETWEEN:
PAMELA ALLCHIN
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
Issue
[1] For the taxation years 1993, 1994 and 1995, Pamela Allchin claimed to be a resident of the United States and not subject to taxation under the Income Tax Act of Canada, R.S.C. 1985, c. 1 (5th Supp.) (the "Income Tax Act"). In particular, she asserted her right to the protection of the provisions of the Canada-United States Tax Convention Act, 1984 (S.C, 1984, c. 20, Schedule I) (the "Treaty"). In those years, Ms. Allchin held a "green card", officially known as a Permanent Resident Card, which entitled her to permanently live and work in the United States.
[2] The issue of Ms. Allchin's residence for tax purposes was decided by a Judge of the Tax Court of Canada in a decision dated July 14, 2003 (reported as 2003 DTC 935). The Judge reviewed the leading Canadian authority in Thomson v. Minister of National Revenue (1945) 2 DTC 812 (S.C.C.) as well as the evidence presented. He concluded that there was not "sufficient permanency" in Ms. Allchin's connections to the United States to sever her residential ties to Canada. Having so decided, the Judge concluded that Article IV(2) of the Treaty, dealing with dual residency (the tie-breaking provisions), was not applicable. Ms. Allchin now appeals that decision.
[3] For the reasons which follow, I would allow the appeal.
Facts
[4] Ms. Allchin was born in Canada, and in 1967 moved with her parents to Detroit, Michigan. At that time she obtained a green card. In 1969, she moved back to Windsor, Ontario but maintained her green card status through employment as a registered nurse in Michigan. Her green card status was renewed every six months by virtue of occasional employment in Detroit, commuting from Windsor to work day shifts.
[5] Ms. Allchin was also employed at a Windsor hospital from 1983. However, because of employment problems at that hospital, she submitted her resignation in April 1991 and decided to seek full time employment in the United States. She then enrolled at a school in Michigan to obtain further education. Starting in September 1992, and throughout the disputed years, Ms. Allchin worked in the hospital industry selling hospital supplies throughout the United States.
[6] Ms. Allchin testified that she filed her tax returns in the United States as a United States resident on her worldwide income. It was an agreed fact at trial that her qualified tax advisor in the United States prepared her United States resident tax returns for those years, and filed them on the basis of her representations that she was a United States resident. United States tax was paid on her worldwide income.
[7] The Minister of National Revenue determined that Ms. Allchin did not sever her ties with Canada and therefore she must report and pay tax on her worldwide income pursuant to the Income Tax Act for the 1993, 1994 and 1995 taxation years.
[8] Ms. Allchin is now retired and lives in Windsor.
Legislation
[9] Article IV of the Treaty reads as follows:
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1. For the purposes of this Convention, the term "Resident of a Contracting State" means any person that, under the laws of that State, is liable to tax therein by reason of that person's domicile, residence, citizenship, place of management, place of incorporation or any other criterion of a similar nature ... |
1. Au sens de la présente Convention, l'expression « résident d'un État contractant » désigne toute personne qui, en vertu de la législation de cet État, est assujettie à l'impôt dans cet État, en raison de son domicile, de sa résidence, de son siège de direction, de son lieu de constitution ou de tout autre critère de nature analogue ... |
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2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows: |
2. Lorsque, selon les dispositions du paragraphe 1, une personne phsyique est un résident des deux États contractants, sa situation est réglée de la manière suivante: |
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(a) 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 States or in neither State, 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); |
(a) Cette personne est considérée comme un résident de l'État contractant où elle dispose d'un foyer d'habitation permanent; si elle dispose d'un foyer d'habitation permanent dans les deux États ou ne dispose d'un tel foyer dans aucun des États, elle est considérée comme un résident de l'État contractant avec lequel ses liens personnels et économiques sont les plus étroits (centre des intérêts vitaux); |
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(b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
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(b) Si l'État contractant où cette personne a le centre de ses intérêts vitaux ne peut pas être déterminé, elle est considérée comme un résident de l'État contractant où elle séjourne de façon habituelle; |
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(c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and |
(c) Si cette personne séjourne de façon habituelle dans les deux États ou si elle ne séjourne de façon habituelle dans aucun des États, elle est considérée comme un résident de L'État contractant dont elle possède la citoyenneté; et |
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(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
[Emphasis added] |
(d) Si cette personne possède la citoyenneté des deux États ou si elle ne possède la citoyenneté d'aucun d'eux, les autorités compétentes des États contractants tranchent la question d'un commun accord. [Je souligne] |
[10] Before this Court, counsel for Ms. Allchin argued that the Judge committed a legal error based on his assumption that the Canadian common law test of "ordinarily resident" as established in the Thomson case is the proper test to determine United States residency. In particular, the "severing ties" analysis was said to be used only to determine when Canadian residence ends and is not to be used when determining when residence commences elsewhere. It was urged that to proceed as the Judge did fails to recognize the concept of "dual residency".
Standard of Review
[11] The Supreme Court of Canada has established the standard of review to be applied by this Court in reviewing decisions of the Tax Court of Canada. For questions of law, the standard is correctness while for findings of fact, inferences or conclusions of fact and conclusions of mixed fact and law, the standard is palpable and overriding error. There is, however, an exception in regard to conclusions of mixed fact and law. If a clear legal error can be isolated from the facts, the error will be reviewed on a correctness standard. (See Housen v. Nikolaisen, [2002] 2 S.C.R. 235).
Analysis
[12] It is well established that a tax treaty is to be given a liberal interpretation with a view to implementing the true intention of the parties. Literal or legalistic interpretations which defeat its basic objectives are to be avoided (see J. N. Gladden Estates v. The Queen _1985_ 1 C.T.C. 163 (F.C.T.D.) at 166-7, cited with approval by the Supreme Court of Canada in Crown Forest Industries Ltd. v. Canada _1995_ 2 S.C.R. 802 at paragraph 43). In Crown Forest Industries, the Supreme Court of Canada noted that the Treaty was intended to benefit Canadians working in the United States or vice versa, by protecting them from double taxation. An ancillary goal was also said to be the mitigation of administrative problems in having to file simultaneously tax returns in two uncoordinated tax systems (supra at paragraph 46).
[13] The Judge apparently conducted his analysis in the fashion urged by counsel. He wrote at paragraph 8:
During the argument both counsel stated that the determination of residence for tax purposes depends upon an interpretation of the relevant facts. I agree.
After conducting a factual interpretation he concluded at paragraph 13 that Canadian residency had not been severed:
I have carefully examined all of the relevant facts and I have concluded that there is no sufficient permanency involving the Appellant's connections to the United States that would result in the severing of the Appellant's residence ties to Canada in the 1993, 1994 and 1995 taxation years.
He continued in paragraph 14 :
... _S_ince I have determined that the Appellant was not a resident of the United States in the 1993, 1994 and 1995 taxation years the tie breaking provisions contained in the Canada - U.S. Tax Treaty do not apply in this situation.
[14] In my analysis, this is an erroneous approach. The learned Judge failed to consider that Ms. Allchin might be a dual resident, which concept necessarily involves the possibility of residency being established in the United States without having severed ties to Canada. Having found that Ms. Allchin was resident in Canada, pursuant to the Thomson approach, the Judge should have examined whether she was also resident in the United States for the purposes of the Treaty (see Sobolev v. Her Majesty the Queen, 2002 DTC 1217 at paragraph 15).
[15] The Judge erroneously ignored the fact that, as a green card holder, Ms. Allchin was required to pay tax in the United States regardless of her physical residence. Green card status is a "criterion of a nature" similar to United States residence so as to bring Ms. Allchin within the definition of "Resident of a Contracting State" under Article IV(1). In turn, the Judge's factual findings establishing Canadian residency under the Thomson analysis gives rise to dual residency and the need for a liberal analysis under the tie-breaking provisions of Article IV(2). The failure to conduct the analysis provided by the Treaty is clearly a legal error.
[16] While technical explanations attached to treaties are not binding on the Court, they may be accepted as valid guidance (see Kubicek Estate v. Canada, 97 DTC 5454 at 5456). In this case, the following commentary on Article IV(2) concerning the definition of "residence" and the use of the tie-breaking provisions is germane:
As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the home is essential; this means that the individual arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at school, etc.).
[17] The appeal should be allowed, the decision of the Tax Court of Canada, dated July 14, 2003 should be set aside and the matter referred back to a judge of the Tax Court of Canada for redetermination. The parties should be permitted to call additional evidence if they choose. Ms. Allchin's costs on appeal and in the Tax Court of Canada should be set at $12,000 inclusive of disbursements and G.S.T.
J.A.
I agree
"Robert Décary" J.A.
I agree
"J. Edgar Sexton" J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKETS: A-444-03
STYLE OF CAUSE: Pamela Allchin and Her Majesty The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: May 17, 2004
REASONS FOR JUDGMENT BY: MALONE J.A.
CONCURRED IN BY: DÉCARY J.A.
SEXTON J.A.
DATED: May 27, 2004
APPEARANCES:
Mr. John Mill For the Appellant
Mr. Roger Leclaire For the Respondent
SOLICITORS OF RECORD:
Mill Professional Corporation
Barristers & Solicitors
Windsor, Ontario For the Appellant
Mr. Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Ontario For the Respondent