Tax Court of Canada Judgments

Citation: 2003TCC862

Date: 20031125

Docket: 2001-1903(IT)G

BETWEEN:

PAUL J. NICHOLSON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

AMENDED REASONS FOR JUDGMENT

The text of the original Reasons for Judgment issued on

November 25, 2003 has been amended and the changes have

been integrated in the body of this document.

Rip, J.

[1]      The issue in these appeals by Paul J. Nicholson is whether he was a resident of Canada from January, 1995 to September, 1996.

[2]      In June, 1991 Mr. Nicholson was recruited by a United States corporation, Newark Electronics ("Newark"), to be trained to head Newark's business in Canada. At the end of 1991, Mr. Nicholson was named Newark's director of sales and operations for Canada. Mr. Nicholson was trained by Mr. Chuck Urho who, upon Mr. Nicholson's appointment, was relocated to Europe.

[3]      Mr. Nicholson explained that Newark was one of 17 corporations owned by Premier Industrial Corporation, a publicly-traded American corporation. Mr. Nicholson stated that, at the time, he was in third level management reporting to the vice-president of sales for North America. He described Newark as "internally driven", a company that promoted from within. He could continue to run Canadian operations or move up in the organization. Mr. Nicholson confirmed to his superior that he wanted a greater opportunity with Newark, in particular since he was rated "highly promotable". His future was either in the United States or in Europe.

[4]      In 1993 Mr. Nicholson and his wife separated. Mrs. Nicholson had custody of their two sons. Mr. Nicholson had access to them each weekend. Mr. Nicholson moved to his father's home for three months and then rented an apartment in London, Ontario. Mrs. Nicholson and the children continued to live in the matrimonial home, which was owned jointly by Mr. and Mrs. Nicholson.

[5]      The matrimonial home in London was a major family asset. Mr. Nicholson was awarded a $30,000 equalization payment on separation. He remained on title to the matrimonial home as security for the equalization payment until 2001.

[6]      In August, 1994, Mr. Nicholson was approached by the president and director of sales of Newark to move to England to take over Newark's business operations in Europe. He was surprised at the offer. He would be taking over the European operations from Mr. Urho, his mentor, who had not been successful. Mr. Urho was the fourth person to head European operations and the other three persons were promoted to vice-president in Newark's head office in Chicago.

[7]      Mr. Nicholson accepted the position in Europe at a higher salary than he was paid in Canada. The company also provided him with rental accommodations in London and an automobile. He was also provided with funds for his sons to visit him twice a year, and they did visit him during the summers of 1995 and 1996. As an employee of Newark, Mr. Nicholson was also eligible to continue participating in the Premier stock option plan. Newark also paid for him to obtain tax advice from an international accounting firm before leaving Canada.

[8]      Newark was able to secure a 36-month work permit in the United Kingdom for Mr. Nicholson. During this period he was to hire and train a resident of the United Kingdom to succeed him by the third year. In the meantime he was to run the European operations. The president of Newark, Mr. Nicholson testified, told him that their "vision" was that after three years he would go to Chicago to run international sales. There would be no position available for him in Canada once his term in Europe expired.

[9]      Newark agreed to continue Mr. Nicholson's Canadian benefits while he was in Europe: the company would continue, and did continue, to make Canada Pension Plan contributions on his behalf and that he would be able to continue his medical/dental plan in Canada as well as his Ontario Health Insurance Plan. Mr. Nicholson testified that he had two children in Canada and an ex-spouse; if he lost coverage, he declared, so would they. He planned to continue using his Ontario drivers' licence in the United Kingdom until it expired. Mr. Nicholson did not apply for residence status in the United Kingdom but did apply for an insurance number in the United Kingdom.

[10]     Mr. Nicholson entered the United Kingdom on January 9, 1995. He opened a bank account at Barcley's Bank to receive a portion of his salary and to issue cheques.

[11]     Mr. Nicholson continued to maintain a bank account in Canada from which he made monthly payments (by post-dated cheques) to Mrs. Nicholson. He also had another bank account in Canada, which he shared with Ms. Sheila Aitken, who he described as his girlfriend.

[12]     According to Mr. Nicholson, the United Kingdom taxes income brought into the United Kingdom so he planned that only a minimal amount of his income would be paid in the United Kingdom; he received Ł500 as a living allowance and Ł500 as salary. The balance of his salary was allocated to purchase shares of Premier and to his two Canadian bank accounts.

[13]     Mr. Nicholson's other assets in Canada included his interest in the matrimonial home, a registered retirement savings plan, which he "collapsed" in 1995, and his share of the furniture in the matrimonial home.

[14]     Ms. Aitken visited Mr. Nicholson in London, England "quite regularly". She was in the United Kingdom "every couple of months for 10 days or so". Her first trip was in March, 1995. Mrs. Aitken had a son living with his father in Saudi Arabia. The child was dyslexic and she was successful in finding a school in England that was able to treat him. Ms. Aitken was a flight attendant with an Air Canada subsidiary and was able to schedule her work so that she could be in the United Kingdom for two weeks and work for two weeks. In 1996, she took a leave of absence for three or four months to be in the United Kingdom. Mr. Nicholson and Ms. Aitken lived together as husband and wife in the United Kingdom and were married in 1999.

[15]     Mr. Nicholson was successful in Europe. Business grew in "leaps and bounds". He hired an English resident who could take over from him in 1996. In the meantime, Mr. Nicholson continued to run European operations. Also, Mr. Nicholson visited Spain, the Benelux countries and other countries of Europe to hire new "country heads".

[16]     During his stay in the United Kingdom, Mr. Nicholson visited Canada once, during Christmas, 1995.

[17]     Sometime in January, 1996, at 7:30 a.m. Mr. Nicholson received a telephone call from Cleveland, Ohio, from a Mr. Bill Hamilton, a director of Premier. Mr. Hamilton informed him that Newark was to be sold to a United Kingdom competitor, Farnell. Mr. Nicholson was "caught by surprise". Mr. Hamilton told him to inform other employees and that a press release would follow at noon, London time. The president of Newark apparently did not yet know of the sale.

[18]     Farnell had a much larger European business than did Newark. Mr. Nicholson's job changed from running the business of Newark to integrating Newark's business into Farnell's business. Newark was located in southwest England, Farnell was located in the northeast. Mr. Nicholson had to wind down the business in the southwest and he did so, relocating to Leeds where he leased a home for one year.

[19]     Soon Mr. Nicholson realized that Newark's business in Europe was to disappear. The head of Newark in the United States was not "a Newark person". He was offered a position by Farnell to be vice-president, North American sales. He had no choice, he said, but to accept. Otherwise he would have no job at all. On or about August 31, 1996 he left the United Kingdom and returned to London, Ontario, an area that he considered central to the areas where he would have to travel in the performance of his duties for Farnell, namely, the eastern United States and Canada.

[20]     Before 1995 Mr. Nicholson was resident in Canada. In January, 1995 he took up residence in the United Kingdom and, he alleges, he so severed his relationship with Canada that he ceased to be resident here. Moreover, in September, 1996 he reacquired his ties to and in Canada.[1]

[21]     I am satisfied that when Mr. Nicholson left Canada in January, 1995 he had no intention to return to Canada, except for visits to his family. His employment opportunities were first in Europe and then in the United States. Respondent's counsel stressed Mr. Nicholson's family ties to Canada: his two sons, his sister and brother. He also commented on Mr. Nicholson's bank account in Canada and continued participation in the Ontario Health Insurance Plan and his interest in the matrimonial home.

[22]     Mr. Nicholson explained the reasons for the maintenance of the two bank accounts, his participation in the provincial health program and the matrimonial home. His explanations are credible. The existence of his family ties in Canada, as far as I am concerned, does not affect his actual intent to ordinarily reside out of Canada and the fact that he did reside out of Canada. It is not unusual these days for members of a family to live in different countries as a result of employment opportunities.[2]

[23]     The settled nature of Mr. Nicholson's life from January, 1995 to the time he decided to leave the United Kingdom in 1996 was in the United Kingdom. He was "ordinarily resident" in the United Kingdom. His presence in the United Kingdom was not casual and uncertain, although he did anticipate an eventual move to the United States. He and Ms. Aitken lived in the United Kingdom as husband and wife; her child attended school in the United Kingdom. Mr. Nicholson's mode of life was in the United Kingdom during the period in issue.[3] Mr. Nicholson's presence in Canada to visit his children during Christmas must be balanced by the visits of his children to visit him in the United Kingdom. The fact of him visiting Canada does not cast him with the status as a resident of Canada.

[24]     Mr. Nicholson's income tax assessment for 1996 includes amounts of unreported interest and taxable capital gains. Respondent's counsel conceded that there were errors in the amounts assessed. Counsel advised that Mr. Nicholson failed to report $315 as interest income from a Government of Canada Treasury Bill and $9,375 as a taxable capital gain from the deposits of shares of Premier Farnell in November, 1996. Both counsel have advised that the taxable gain will be pro-rated to take into account the period of ownership Mr. Nicholson held the shares as a resident and non-resident of Canada.

[25]     According to the notice of appeal, Mr. Nicholson was assessed penalties pursuant to subsection 163(2) of the Act. Since I do not have a copy of the notices of reassessment, I cannot ascertain if this is so. In her notice of reply, the respondent did not refer to any penalty nor did she rely on subsection 163(2). No evidence was called with respect to the penalty. If penalties were assessed, they will have to be vacated.

[26]     The appeals are allowed with costs. The reassessment for 1995 will be vacated. The reassessment for 1996 will be referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that Mr. Nicholson became a resident of Canada on September 1, 1996 and that he is liable for tax on the unreported portion of shares and interest. Appellant's counsel shall prepare a draft of the judgment based on these reasons in accordance with Rule 169 of the Court.

Signed at Ottawa, Canada, this 4^th day of December, 2003.

"Gerald J. Rip"

Rip, J.

CITATION:

2003TCC862

COURT FILE NO.:

2001-1903(IT)G

STYLE OF CAUSE:

Paul J. Nicholson v. The Queen

PLACE OF HEARING:

London, Ontario

DATE OF HEARING:

September 4, 2003

AMENDED REASONS FOR JUDGMENT BY:

The Honourable Justice Gerald J. Rip

DATE OF AMENDED REASONS FOR JUDGMENT:

December 4, 2003

APPEARANCES:

Counsel for the Appellant:

Keith M. Trussler

Counsel for the Respondent:

Marcel Prevost

COUNSEL OF RECORD:

For the Appellant:

Name:

Keith M. Trussler

Firm:

Giffen & Partners

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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