Date: 20001103
Docket: A-709-99
CORAM: ROTHSTEIN, J.A.,
SEXTON, J.A.,
EVANS, J.A.
BETWEEN:
THE ESTATE OF THE LATE
FREDERICK J. HAAS
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
BY ROTHSTEIN J.A.:
[1] In spite of Mr. Nitikman's thorough argument, and giving to the Technical Explanation of Article XIII(9) of the 1980 Tax Convention between Canada and the United States the weight that he says it deserves, we are not convinced that Attorney General of Canada v. Estate of the Late William F. Kubicek Jr. 97 D.T.C. 5454, leave to appeal denied [1997] S.C.C.A. No. 603 (QL) (SCC), which is fatal to the appellant's appeal, was wrongly decided.
[2] Kubicek stands for the proposition that "gain" for purposes of the 1980 Convention is gain that is subject to tax. For Canadian income tax purposes that makes December 31, 1971 (V-Day), the date after which Canada began taxing gains, relevant for purposes of Article XIII (9). While the purpose of the Convention is to avoid double taxation and, as counsel for the appellant argued, while the Convention is to be reciprocal, there will still be provisions of United States and Canadian law that will yield different results in their application for Canadian and United States' taxpayers. For example, tax rates in each country may be different; in the United States there is no deemed disposition on death for capital gain tax purposes as there is in Canada. Thus, perfect symmetry will not be achieved by the 1980 Convention.
[3] While the Technical Explanation of the 1980 Convention refers to "total gain", this phrase cannot be read in isolation. In the United States it refers to the period commencing on the acquisition date because the United States did not exempt capital gains from taxation. In the Canadian tax context, however, total gain only has relevance to the period when, absent the tax treaty, a United States' citizen would have been liable for capital gains tax in Canada. That period commenced after December 31, 1971.
[4] The 1942 Canada--U.S. Tax Treaty exempted United States and Canadian residents who disposed of their real property in the other country from tax on any gain by that other country. The 1980 Convention made United States and Canadian residents liable for capital gains tax, but only for gains arising after December 31, 1984. The 1980 Convention provides for either valuing property as of December 31, 1984, i.e. "safe start" or "fresh start" date, or, at the tax payer's option, calculating the amount by which proceeds of disposition are to be reduced for tax purposes by application of a formula, the scheme of which is to exclude gains up to December 31, 1984.
[5] For United States' residents disposing of Canadian real property, calculation of the reduction begins at the point at which the gain first began to accrue for Canadian income tax purposes. Therefore, for properties acquired prior to V-Day, the starting point for calculating the reduction will be December 31, 1971, the date after which Canada began to tax capital gains. Thus, calculating the amount of reduction in such cases entails subtracting the V-Day value from the proceeds of disposition and multiplying the difference by the number of months that the gain accrued from V-Day to 1985, divided by the number of months the gain accrued from V-Day to date of disposition. That was the conclusion reached in Kubicek.
[6] We acknowledge that we are not bound to perpetuate error and if we were convinced that Kubicek had been wrongly decided, it would be open to us to depart from it. However, we have not been convinced that Kubicek was wrongly decided.
[7] The appeal will be dismissed with costs.
(Sgd.) "Marshall Rothstein"
J.A.
November 3, 2000
Vancouver, British Columbia
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| DOCKET: A-709-99 |
| STYLE OF CAUSE: The Estate of the Late Frederick J. Haas |
v.
Her Majesty The Queen
| PLACE OF HEARING: Vancouver, British Columbia |
| DATE OF HEARING: October 30, 2000 |
REASONS FOR JUDGMENT BY ROTHSTEIN, J.A.
| CONCURRED IN BY: Sexton, J.A., |
Evans, J.A.
| DATED: November 3, 2000 |
APPEARANCES:
| Mr. Joel Nitikman For the Appellant |
| Ms. Linda Bell For the Respondent |
SOLICITORS OF RECORD:
Fraser Milner
Barristers and Solicitors
| Vancouver, BC For the Appellant |
Morris Rosenberg
Deputy Attorney
| General Of Canada For the Respondent |
Date: 20001103
Docket: A-709-99
CORAM: ROTHSTEIN, J.A.,
SEXTON, J.A.,
EVANS, J.A.
BETWEEN:
THE ESTATE OF THE LATE
FREDERICK J. HAAS
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
Heard at Vancouver, British Columbia on October 30, 2000
JUDGMENT delivered at Vancouver, British Columbia on November 3, 2000
REASONS FOR JUDGMENT BY: ROTHSTEIN, J.A.