Date: 20010514
Docket: 2000-4635-IT-I
BETWEEN:
CECILIA WANG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] This appeal was heard at Vancouver, British Columbia on April 25, 2001 pursuant to the Informal Procedure of this Court.
ISSUE
[2] The issue is whether the Appellant in 1998 is exempt from tax in Canada in respect of an amount of $19,016.78 received by her from her employer in China by reason of the operation of subparagraph 110(1)(f)(i) of the Income Tax Act ("Act") and the relevant provisions of the China/Canada Tax Agreement ("Tax Agreement").
FACTS
[3] The basic facts are as follows. In February, 1998 the Appellant entered into a contract with Duracell (China) Limited ("Company") entitled "Training and Employment Contract" ("Contract"), (Exhibit A-1) and at all material times the Appellant was employed by the Company.
[4] Prior to entering Canada on April 2, 1998 the Appellant had applied for and received landed immigrant status in Canada.
[5] The $19,016.78 was paid to the Appellant by the Company in 1998 in order for her to attend school in Canada and pay for her living expenses.
[6] The Appellant married her husband in China on September 18, 1998 and he moved to Canada on November 23, 1999.
[7] The Appellant had the following ties to Canada during the 1998 taxation year:
(a) A furnished room in a townhouse for which she paid rental of $300.00 per month;
(b) Clothing and personal property;
(c) Automobile and Canadian driver's license;
(d) Bank account; and,
(e) Eligibility for provincial hospitalization and medical coverage.
[8] The Appellant had the following ties to China during the 1998 taxation year:
(a) She was subject to income tax in China and the Company withheld from her income and paid her China taxes on her behalf;
(b) Although the Appellant did not have any relatives in Canada in 1998, she had a significant number of relatives in China including her immediate family and her husband who continued to reside in China in 1998;
(c) The Appellant was provided with Company housing in China, which would continue to be available for her stay throughout the period of the Contract. The Appellant also owned an apartment unit in China, which was also available to her throughout 1998;
(d) The Appellant had Chinese bank accounts and credit cards;
(e) In 1998 she had personal belongings in China including clothing, furniture, appliances and a motorcycle;
She maintained her Chinese driver's license; and
She belonged to the Human Resources Association of Canton.
[9] Although the Appellant made application on behalf of her future husband for him to obtain landed immigrant status in Canada, her intention was not necessarily to stay in Canada permanently. That decision could only have been made after consideration of her husband's ability to find employment in Canada.
[10] As of the date of the hearing of this appeal, the Appellant had not yet obtained Canadian Citizenship.
[11] One of the objectives set forth in the Contract was for the Appellant to obtain Canadian Citizenship and enhance her personal mobility.
[12] Article 3 of the Contract provides as follows:
3. Program
|
Apr 98 - Apr 99: |
MBA program at Kingston College, Vancouver, Canada. Program and course details are attached. Summer or Winter break will be spend [sic] in the China plant. Project work will be related to Duracell or Gillette operations in North America |
|
May 99 - Aug 99: |
US based project. Content and objectives to be specified. ... Project has to include activities in Bethel and/or Boston corporate. |
|
Sep 99 - Mar 00: |
Duracell China Ltd - department to be defined |
|
Apr 00 - Apr 01: |
Return to Canada, either in a follow-up academic activity, either in Gillette/Duracell operation, either other geography. Continuation of project work with coverage of different functional areas. |
[13] The Contract also provided that the Company was to pick up Duracell related taxes in Canada.
[14] Paragraph 8 of the Contract provides as follows:
8. End of Training Contract
8.1 This contract has no defined end; however, the company does not intend to ask you for another major assignment during your MBA year. After this year and depending upon your geographical freedom (number of days allowed out of Canada to preserve your citizenship application), we will provide you with a number of developmental cross-functional/divisional opportunities.
8.2 At the end of this training contract, it is anticipated that one of the following options will apply:
a. you will return to Duracell China Ltd.
b. you will take on another assignment in another part of the Duracell or Gillette group
c. you decide to leave the Company or you are terminated for cause, the Duracell China Employee Handbook stipulations will apply with respect to service bond after training.
Salary payments during training are excluded in this case.
[15] It was the testimony of the Appellant that her educational training in Canada was not for the purpose of employment in Canada but rather in the United States.
SUBMISSIONS OF THE APPELLANT
[16] The agent for the Appellant submits that Articles 4 and 19 of the Tax Agreement apply to the Appellant. Under Article 4 it was maintained that the centre of vital interests was China and the fact is that taxes were paid to China on behalf of the Appellant by the Company.
SUBMISSIONS OF THE RESPONDENT
[17] Counsel for the Respondent submits that it is Article 19 of the Tax Agreement that governs and since the Appellant was not "visiting" Canada but rather by her application for and obtention of landed immigrant status, she displayed an intention to reside permanently in Canada. Further, counsel submits that she was not in Canada solely for the purposes of her training as she had received other amounts of income from odd jobs.
ANALYSIS AND DECISION
[18] Subparagraph 110(1)(f)(i) of the Act exempts from Canadian income tax 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. Articles 4 and 19 of the Tax Agreement provide as follows:
Article 4
Resident
1. For the purposes of this Agreement, the term "resident of a Contracting State" means any person who, under the laws of that Contracting 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.
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:
(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 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);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and to determine the mode of application of this Agreement to such person.
...
Article 19
Students
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.
[19] It is abundantly clear that the main purpose of the Tax Agreement is the avoidance of double taxation both in China and in Canada and in my opinion the provisions of the Agreement should be interpreted in such a manner as to achieve that purpose. Consequently I believe that I am entitled to examine the effects of both Articles 4 and 19 of the Tax Agreement.
[20] Under Article 4, where a person 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 interest). It provides further that if the centre of vital interest cannot be determined he shall be deemed to be a resident of the Contracting State in which he has an habitual abode and further if he has an habitual abode in both Contacting States, he shall be deemed to be a resident of the Contracting State of which he is a national.
[21] In my opinion, the centre of vital interests of the Appellant in 1998 was China. My reasons for this conclusion result from a comparison of the connecting links with Canada and China referred to above under the heading "Facts". In any event, even if one were to conclude that the centre of vital interests could not be determined, if the person had an habitual abode in both Contracting States, which was the case, that person is deemed to be a resident of the Contracting State of which he is a national. There was no doubt that in 1998 the Appellant was a national only of China and if that tie-breaker was to come into effect, the answer would still be that she was a resident of China in 1998.
[22] I have been referred to certain jurisprudence by counsel for the Respondent to the effect that only Article 19 should be looked to in situations such as the present. In my view the authorities cited to me are either not binding on me, or to the extent they are, the present case can be distinguished on its facts from those authorities.
[23] In any event I believe Article 19 is also available to the Appellant. The fact of her applying for and obtaining landed immigrant status does not, in my opinion, automatically lead to the conclusion that she could not have been visiting in Canada in 1998. The evidence is that she visited China on at least two occasions in 1998 and although the Contract has one objective for the Appellant to obtain Canadian Citizenship, that objective must be read in the context of what happens at the end of the training contract as provided in paragraph 8 of the Contract. One of those options was for the Appellant to return to Duracell China Ltd. I believe one can conclude from the foregoing that the issues of landed immigrant status and the objective of obtaining Canadian citizenship cannot be looked at in a vacuum. All of the surrounding facts as set forth above must be looked at and in my view, they do not lead to a conclusion that the Appellant intended to reside permanently in Canada.
[24] For all of the above reasons the appeal is allowed with costs.
Signed at Ottawa, Canada, this 14th day of May, 2001.
"T. O'Connor"
J.T.C.C.