Date: 20000531
Docket: 98-2703-IT-I
BETWEEN:
PERLITA M. SANCHEZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench at Ottawa, Ontario, on February 18, 2000)
Bowie J.T.C.C.
[1] As I understand it, there are four issues raised by the Appellant in this case. The first issue is as to whether she is taxable at all in Canada. Her agent submits that the provisions of Article 15, paragraph 2(a) of the Canada-U.S. Income Tax Convention (1980) exempt her from taxation in Canada.
[2] The Appellant is a citizen of Canada and moved to the United States, or at least physically went there, and rented an apartment in February 1996, where she was employed throughout the balance of the year. She returned to Toronto at intervals of some months, in order to satisfy the immigration laws of the United States, which required her to renew her permit to work in that country from outside the country, at six month intervals. When she went to Florida, she left her husband and daughter in the house that the family had owned and occupied for some time in Mississauga.
[3] According to her responses to the questions in Exhibit R-2, a determination of residency status questionnaire, she maintained significant personal ties with Canada, and of course, as a citizen, has the right to remain and work in Canada at will, as opposed to her situation in the United States, where she has to renew her immigration status at six-month intervals. There is not, I think, any significant doubt that she continued to be a resident of Canada for the purposes of the income tax laws and treaties during her tenure, and her work between February and December 1996 in the United States. Her representative suggests, however, that the words of Article 15 of the Convention apply, such that she can escape taxation in Canada.
[4] The relevant part reads as follows:
ARTICLE XV
1. ... salaries, wages, and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in a calendar year in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) such remuneration does not exceed ten thousand dollars ($10,000) in the currency of that other State; ...
[5] As I understand Mr. Sanchez's argument, it is that the proviso that the income shall be taxable only in the first mentioned State, if it does not exceed $10,000, exempts his wife from taxation in that first mentioned State (which in the present case is Canada), because her U.S. income was greater than $10,000. In fact, the true construction of that Article is simply this: that as a resident of Canada, the Appellant is taxable upon her world income. Article 15 of the Convention would exempt her from any taxation in the United States, but for the proviso in subparagraph 2(a). As a result of it, because her remuneration in the United States in the year exceeded $10,000 in U.S. currency, the United States also had the right to tax the Appellant during 1996, as in fact it did.
[6] Mr. Sanchez quite properly argues that his wife is entitled to be protected from double taxation, and indeed, that is the purpose of Article 24 of the Treaty. Its provisions to protect against double taxation operate through the foreign tax credit. In the present case, it is not disputed by the Minister of National Revenue that the Appellant was taxed in the United States, specifically, in the amount of $10,126.63, which the Minister has converted from U.S. dollars to Canadian dollars at the rate of C$1.30 per dollar U.S., to provide C$13,164.62 as the Canadian equivalent of the U.S. tax paid for the purpose of the foreign tax credit to which the Appellant is entitled. She has been given this credit in the assessment under appeal, and the Appellant therefore fails on that issue.
[7] The next issue raised by Mr. Sanchez is a claim for $928.07 for the moving expenses incurred by the Appellant to move from Mississauga to Florida for the purpose of taking up employment there. The Respondent, in paragraph 13 of the Reply to the Notice of Appeal, has now conceded that the Appellant is entitled to that deduction in computing her taxable income.
[8] The third issue is a claim of $25,080 made by her in filing her return for what are described as employment expenses. In the course of the evidence before me, it came out that this claim is made up of such things as health insurance for the Appellant in the United States, a work permit, and the cost of renewing that from time to time in the United States, airfares for return trips between Florida and Toronto, so that the Appellant could leave the United States, and then re-enter, and thereby regularize her entitlement under the United States immigration laws to work in that country. The cost of renting accommodation and paying the utilities in that accommodation in Florida, the cost of expenses for going back and forth between her place of residence and her place of work in Florida and the cost of her meals eaten at, or near, her places of employment in Florida were also included in this amount. There also was an amount claimed in respect of uniforms and shoes to be worn while working, which the Appellant's representative stated in his evidence was about $500.00. However, he could provide no particulars, and had no receipts to offer. All of these items, with the possible exception of the uniform and shoes, are personal expenses, the deduction of which is precluded by paragraph 18(1)(h) of the Income Tax Act. Insofar as uniform and shoes are concerned, it is not established in the evidence either that the Appellant is required to wear particular uniforms or shoes, or that any particular amount of money has been expended on them. Consequently, the Appellant fails on that issue.
[9] The next issue is a claim to deduct from her income, in arriving at her net income, the amount of $9,862.80 in U.S. dollars, converted at $1.30, to C$12,821.64, being the taxes paid by the Appellant in the United States. In effect, the Appellant seeks to have the amount of taxes paid in the United States deducted in arriving at her net income, and then, to have the same taxes applied against her tax payable in Canada as a foreign tax credit. There is no provision for this in the Income Tax Act, nor do I accept her agent's proposition that fairness would require it. What fairness, and the Convention requires is that she have credit in assessing her to income tax in this country, for the taxes paid in the United States, and that, of course, she has. A Canadian resident who lives and works in Canada does not get to deduct from her total income the amount of taxes that she will be required to pay on her taxable income in arriving at her net income. There is no logic to the suggestion that such a benefit should apply to somebody who is a resident in Canada and employed elsewhere. The appeal fails on that issue as well.
.
[10] In the result, therefore, the appeal will be allowed, but only to the extent necessary to give effect to the concession made by the Respondent in paragraph 13 of the Reply. The assessment will be referred back to the Minister of National Revenue, for reconsideration and reassessment on the basis that the Appellant is entitled, in computing her taxable income for the 1996 taxation year, to deduct moving expenses in the amount of $928.07.
Signed at Ottawa, Canada, this 31st day of May, 2000.
"E.A. Bowie"
J.T.C.C.