BETWEEN:
and
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Appeal heard on November 30, 2004 at Windsor, Ontario
Before: The Honourable Justice R.D. Bell
Appearances:
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JUDGMENT
The appeal from the reassessments made under the Income Tax Act for the 1993, 1994 and 1995 taxation years are allowed, with costs to the Appellant, and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 8th day of April, 2005.
BETWEEN:
PAMELA ALLCHIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
ISSUE
[1] The issue is whether the Appellant was, in her 1993, 1994 and 1995 taxation years, resident in Canada and, therefore, taxable in Canada pursuant to the provisions of Section 2(1) of the Income Tax Act of Canada ("Act").
HISTORY OF APPEAL
[2] A Judge of this Court heard this case and issued a Judgment on July 14, 2003 in which he found that the Appellant was resident in Canada for the above taxation years. The Appellant appealed his decision to the Federal Court of Appeal.
[3] On May 27, 2004 the Federal Court of Appeal issued a Judgment which stated:
The matter is referred back to a judge of the Tax Court of Canada for redetermination.
[4] That Court said:
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. ... the Judge should have examined whether she was also resident in the United Statesfor the purposes of the Treaty.
It added:
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 ... In particular, she asserted her right to the protection of the provisions of the Canada- United StatesTax Convention Act, 1984 ... 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.
Schedule I is described as a CONVENTION BETWEEN CANADA AND THE UNITED STATES OF AMERICA WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL.[1] This Convention was signed at Washington, D.C. on September 26, 1980 and amended by two Protocols signed on June 14, 1983 and on March 28, 1984 respectively, which came into force with the exchange of instruments of ratification on August 16, 1984. I shall refer to this document as the "Treaty".
A third Protocol, pursuant to an Act to amend the Canada- United States Tax Convention Act, 1984, came into force on November 9, 1995 with the exchange of instruments of ratification at Ottawa. This Protocol amended Article IV of the Treaty. Accordingly, the provisions of the Treaty which apply to the 1993, 1994 and most of the 1995 taxation years are those which were extant before the third Protocol became effective. Although the portions of the version of Article IV of the Treaty reproduced in the Federal Court of Appeal judgment do not apply to the 1993 and 1995 taxation years and most of the 1995 taxation year, the changes made by the third Protocol were not relevant to that Court's determination.
[5] The Federal Court of Appeal's Reasons for Judgment also said:
The Judge erroneously ignored the fact that, as a green card holder, Ms. Allchin was required to pay tax in the United Statesregardless 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).
[6] The Appeal Court's Reasons for Judgment also stated that:
The parties should be permitted to call additional evidence if they choose.
[7] When I heard this appeal pursuant to the Federal Court of Appeal direction, the Appellant produced additional evidence. Accordingly, I have had the benefit of the transcript from the first hearing before this Court and of the proceedings before me.
FACTS
[8] I shall commence by setting forth the summary of facts set out by the Federal Court of Appeal in its Reasons for Judgment, namely:
[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 in now retired and lives in Windsor.
This is supplemented by the following further facts.
[9] The Appellant married a Canadian citizen and moved to Windsor in 1969. In 1990 the Appellant worked at a Windsor hospital and at consulting work in Detroit. She then lived in Windsor, Ontario. The Appellant testified that in 1991 her green card status was changed from "commuter" to "permanent resident". The Appellant also testified that in May or June, 1991 she moved from Windsor to Novi, Michigan and lived in her cousin's house, it being a four bedroom home in which she had her own bedroom and bathroom and access to the entire house. She testified that she had her own key and that the locks were never changed. She lived in this house until June, 1993.
[10]The Appellant further testified that in 1992 she graduated from the school she was attending in Michigan. In addition, she said that she, in that year, had a Michigan driver's licence and that she filed her income tax return in Canada. She also ceased to be a member of the Windsor Operating Nurses Association and became a member of the Michigan Nursing Association in that year.
[11]The Appellant stated that the family home in Windsor was sold in mid 1992 after the sale of other properties held jointly with her husband. She further testified that this was done on the advice of Les Hulka ("Hulka"), an American immigration lawyer. She said that her family then rented a cottage in Windsor. She stated further that she had, by September, 1992 no bank accounts and no Canadian property in her name but that she did have an Ontario driving licence.
[12]She said that in 1993 she set up a telephone line in Canada mainly to obtain messages from her mother, not wanting her mother to pay long distance charges to call her. She said that in 1993 she sent a cheque for $6,000 in January and a cheque for $2,500 in April to her husband, mainly to help with her children's expenses, and that she sent other cheques to her husband during the years under review.
[13]The Appellant stated that in July, 1993 she moved into a condominium in Michigan owned by her friends, the Wilsons. They were not permanent residents there but came to visit her on weekends. She further stated that in 1993 she filed her income tax return as a United States ("U.S.") resident. She said that she purchased a boat in Michigan in June, 1994, kept it at a Detroit marina and lived on it during the summer months. She said that she still did laundry at the Wilson condominium and retained a key for it. She testified further that in May, 1994 the Wilsons moved into the condominium full-time but that she retained her own bedroom and bath and had full use of the home. In addition, she said that she stored her boat in Ontario during the winter of 1994 and 1995. She testified that in March 1995 she and her husband bought an Ontario property for renovation and rental income. She said that she used a cell phone on her boat to retrieve messages left for her at the Wilsons' condominium.
[14]She stated that her husband and daughter received their green cards in March or April, 1995.
[15]The Appellant testified she had had discussions with her immigration lawyer, Hulka whom, she said, was licensed in the State of Michigan and also, she believed, in Canada. She said that she was advised that in order to petition her family she had to reside in the U.S. and break all ties with Canada. She said more specifically:
My lawyer, Mr. Hulka, told me that I had to reside in the United States in order to petition my husband and family over with a green card. ... he told me the first thing I had to do was get rid of everything in Canada. Sell my home. Just get into a home and live there ... in a home in the United States.
[16]It was after speaking to Hulka that she conferred with her cousin and moved into the home with her in 1991. She testified that she told her cousin it would be
about a year to a year and a-half
to get my husband his green card and my family and she (referring to her cousin) said well, live here. She just said you can live here until you get your green card.
[17]She then, in response to her counsel's question, said:
A green card is issued by the United States that allows you to reside, permanently reside in the United States and if you choose to do so you can use it as a commuter until such time as you move back permanently.
She explained that a commuter's card allows one to go back and forth to work in the U.S., while living in Canada.
[18]The Appellant also stated at the re-hearing:
The plan was that we would sell our home and my husband and I and my children would move to the United States and start a new life. Dennis was going to start a new business. I, of course, had my ... working on my degree in nursing so I was going to get a better job in the United States and my children were going to go to university in the United States and just live there.
[19]An exchange between the Appellant and her counsel follows:
Q. And did you talk about rent or payment or anything like that?
A. I offered to pay rent and she's my family and we don't do that in our family. We don't charge rent.
Q. Well what did she say to you?
A. She said, Pam, you're not going to pay rent. You can just live here and pay, you know, your fair share of whatever it is, groceries and whatever.
Q. All right. Did you do any cleaning around the house?
A. I took care of her house when she was away and I was there. I would clean the house. I'd buy groceries. I'd buy her gifts. I'd take her out for lunch.
Q. Okay and was your understanding that you were doing more of that than you would normally do?
A. No, I would do the same thing at any house I lived ...
[20]The Appellant said that her husband and daughter received their green cards in March or April, 1995. She also said that her son was unable because of his older age, to obtain a green card. She said that in November, 1995 she moved her boat back to Ontario storage, that in that year her Ontario driver's licence expired and that she gave up the Ontario telephone.
[21]She said that she moved her boat to the Shore Club in Michigan and lived on the boat in the summer of 1996. She further testified that she was covered by the Ontario Health Insurance Plan for the three years under review and that she visited her dentist and doctor in Ontario throughout that period. She said further that she spent about 100 days in Canada in each of the three years in question.
[22]The Appellant also said that in the years in question she was employed with Repak Surgical Enterprises in the U.S. and that she had no employment in Canada during that period. She stated that she had a bank account in Michigan, that she had several credit cards in the U.S. and that she had no credit cards or banking arrangements in Canada. She said that her pension was an American pension and that the only other asset she owned was her boat which was located substantially in Michigan.
[23]She testified that her husband came to Michigan every weekend in the summer when "the boat was in the water". She said further that Hulka was emphatic that her family not come to the U.S. too often because he advised that if immigration officials thought that her family was living in the U.S. or was there too often they could stop the processing of the green cards.
[24]She stated that most of her girlfriends in the years in question were living in the Michigan area, she having met them through university and through work. The Appellant also stated that she was a member of various nursing associations there.
RELEVANT STATUTORY, TREATY, OECD[2] MODEL TREATY ANDCOMMENTARY PROVISIONS ON THE MODEL
[25]Section 2(1) of the Act states that:
(1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.
emphasis added.
CANADA - U.S.INCOME TAX CONVENTION, (1980)[3]
[26]Article IV, applying, as described above, reads as follows:
Article IV - Residence
1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation 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 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);
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;
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
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. ...
[27] The OECD Model Tax Convention on Income and on Capital, 1992, ("Model") reads in part, as follows:
Article 4
RESIDENT
1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. But this term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.
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 State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed be a resident of the State with which his personal and economic relations are closer (centre of vital interests);
b) if the 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 State, he shall be deemed to be a resident of the State in which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
The COMMENTARY ON ARTICLE 4 CONCERNING THE DEFINITION OF RESIDENT[4] ("Commentary") follows:
I. PRELIMINARY REMARKS
1. The concept of "resident of a Contracting State" has various functions and is of importance in three cases:
a) in determining a convention's personal scope of application;
b) in solving cases where double taxation arises in consequence of a double residence; (emphasis added)
c) in solving cases where double taxation arises as a consequence of taxation in the State of residence and in the State of source or situs.
2. The Article is intended to define the meaning of the term "resident of a Contracting State" and to solve cases of double residence. To clarify the scope of the Article some general comments are made below referring to the two typical cases of conflict, i.e. between two residences and between residence and source or situs. In both cases the conflict arises because, under their domestic laws, one or both Contracting States claim that the person concerned is resident in their territory.
...
II. Commentary on the provisions of the Article
...
Paragraph 2
9. This paragraph relates to the case where, under the provisions of paragraph 1, an individual is a resident of both Contracting States.
...
11. The Article gives preference to the Contracting State in which the individual has a permanent home available to him. This criterion will frequently be sufficient to solve the conflict, e.g. where the individual has a permanent home in one Contracting State and has only made a stay of some length in the other Contracting State.
(emphasis added)
12. Subparagraph a)[5] means, therefore, that in the application of the Convention (that is, where there is a conflict between the laws of the two States) it is considered that the residence is that place where the individual owns or possesses a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration.
13. 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 has 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 a school, etc.).
14. If the individual has a permanent home in both Contracting States, paragraph 2 gives preference to the State with which the personal and economic relations of the individual are closer, this being understood as the centre of vital interests. In the cases where the residence cannot be determined by reference to this rule, paragraph 2 provides as subsidiary criteria, first, habitual abode, and then nationality. If the individual is a national of both States or of neither of them, the question shall be solved by mutual agreement between the States concerned according to the procedure laid down in Article 25.
(emphasis added)
15. If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.
In addition to the materials under the foregoing heading, portions of a pertinent Interpretation Bulletin[6] follow:
IT-221R3 (Consolidated) Determination of an Individual's Residence Status
"Permanent Home" and "Center[7] of Vital Interests" Tests
26. "Tie-breaker rules" are found in paragraph 2 of Article IV of most modern income tax treaties. Usually, these rules rely first on a "permanent home" test to resolve the residence issue. Generally, the "permanent home" test provides that an individual is resident for purposes of the treaty in the country in which the individual has a permanent home available to him or her. A "permanent home" (as that term is used in income tax treaties) may be any kind of dwelling place that the individual retains for his or her permanent (as opposed to occasional) use, whether that dwelling place is rented or purchased or otherwise occupied on a permanent basis. Therefore, an individual may have two permanent homes while living outside Canada (for example, a dwelling place rented by the individual abroad and a property owned by the individual in Canada that continues to be available for his or her use, such as a home that is not leased to a third party on arm's length terms and conditions as described in ¶ 6) and the "permanent home" test will not result in a residency determination. Where this is the case, the "tie-breaker rules" of most treaties then refer to the "center of vital interests" test.
The "center of vital interests" test requires a close examination of the individual's personal and economic ties with each country in question, in order to determine with which country those ties are closer. The personal and economic ties to be examined are similar to those used in determining factual residence for purposes of Canada income tax (see especially ¶ s 4 to 9). There are other tests that will apply if the "center of vital interests" test is inconclusive.
Residence in Canada
[28]The leading authority on the meaning of "residence" is Thomson v. M.N.R, 2 DTC 812 S.C.C. in which Rand, J. said, at page 815:
The graduation of degrees of time, object, intention, continuity and other relevant circumstances, shows, I think, that in common parlance "residing" is not a term of invariable elements, all of which must be satisfied in each instance. It is quite impossible to give it a precise and inclusive definition. It is highly flexible, and its many shades of meaning vary not only in the contexts of different matters, but also in different aspects of the same matter. In one case it is satisfied by certain elements, in another by others, some common, some new.
And at page 816:
But in the different situations of so-called "permanent residence", "temporary residence", "ordinary residence", "principal residence" and the like, the adjectives do not affect the fact that there is in all cases residence; and that quality is chiefly a matter of the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living, with its accessories in social relations, interests and conveniences at or in the place in question. It may be limited in time from the outset, or it may be indefinite, or so far as it is thought of, unlimited.
[29]The Appellant's connections with Canada were substantial. She had a home in Windsor in which her husband and children lived. She spent most weekends with her family in Windsor. She stored her boat[8] in Windsor during the winter months. She had her dentist and doctor in Windsor. She was a member of the Ontario Health Insurance Plan. She also had an Ontario driver's licence for most of the relevant period. Further, she sent money to her family. Although the Appellant moved from Windsor to Michigan in 1991 she paid income tax in Canada for the 1991 and 1992 taxation years. Since she clearly maintained connections on many levels with Canada, I have no difficulty in concluding that she was resident in Canada during the years in question.
[30]The Federal Court of Appeal impliedly reached the same conclusion by having said:
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 provision of Article IV (2). The failure to conduct the analysis provided by the Treaty is clearly a legal error.
Residence in U.S.
[31]The Federal Court of Appeal, commenting on Article IV, 1. said:
Green card status is a "criterion of a nature"[9] similar to United States residence so as to bring Ms. Allchin within the definition of "Resident (sic) of a Contracting State" under Article IV(1).
As I interpret the above, the Federal Court of Appeal has determined that the Appellant was a U.S. resident. There is no need, therefore, for me to discuss that question.
General
[32]Having determined that the Appellant was resident both in Canada and the U.S. during the years under appeal, I am obliged to analyze the tie-breaking rules in Article IV 2. of the Treaty. As a prelude to same I refer to jurisprudence on Treaty interpretations.
[33]CrownForest Industries v. Canada, [1995] D.T.C. 5389 ("Crown Forest"), a unanimous decision of the Supreme Court of Canada, is the leading case on the interpretation of the Treaty. The issue before the Court in CrownForest was whether the respondent was a resident of Canada or of the U.S. pursuant to Article IV of the Treaty. Writing for the Court, Iacobucci, J. stated at page 5393:
In interpreting a treaty, the paramount goal is to find the meaning of the words in question. This process involves looking to the language used and the intentions of the parties.
Further, the learned Justice, at 5396 said:
Reviewing the intentions of the drafters of a taxation convention is a very important element in delineating the scope of the application of that treaty. As noted by Addy, J. in J.N. Gladden Estate v. The Queen, [1985] 1 C.T.C. 163 (F.C.T.D.), at pp. 166-67:
Contrary to an ordinary taxing statute a tax treaty or convention must be given a liberal interpretation with a view to implementing the true intentions of the parties. A literal or legalistic interpretation must be avoided when the basic object of the treaty might be defeated or frustrated in so far as the particular item under consideration is concerned.
and further:
Clearly, the purpose of the Convention has significant relevance to how its provisions are to be interpreted. I agree with the intervener Government of the United States' submission that, in ascertaining these goals and intentions, a court may refer to extrinsic materials which form part of the legal context (these include accepted model conventions and official commentaries thereon) without the need first to find an ambiguity before turning to such materials.
[34]On the same page, Iacobucci, J. said that the Treaty was intended to benefit Canadians working in the U.S.or vice versa, it being important to spare such individuals double taxation
... and to mitigate the administrative complexities occasioned by having to file simultaneously income tax returns in two unco-ordinated taxation systems.
[35]At 5398 the learned Justice was very instructive in saying:
I now turn to another set of extrinsic materials, other international taxation conventions and general models thereof, in order to help illustrate and illuminate the intentions of the parties to the Canada-U.S. Income Tax Convention (1980). Articles 31 and 32 of the Vienna Convention on the Law of Treaties (Can. T.S. 1980 No. 37) indicate that reference may be made to these types of extrinsic materials when interpreting international documents such as taxation conventions; see also Hunter Douglas Ltd. v. The Queen, 79 DTC 5340, (F.C.T.D.), at pp. 5344-5345 and Thiel v. Federal Commission of Taxation, 90 A.T.C. 4717 (H. C. Aus.), at p. 4722.
Of high persuasive value in terms of defining the parameters of the Canada-United States Income Tax Convention (1980) is the O.E.C.D. Model Double Taxation Convention on Income and Capital (1963, re-enacted in 1977): Arnold and Edgar, eds., Materials on Canadian Income Tax (9th ed. 1990), at p. 208. As noted by the Court of Appeal, it served as the basis for the Canada-United States Income Tax Convention (1980) and also has world-wide recognition as a basic document of reference in the negotiation, application and interpretation of multi-lateral or bi-lateral tax conventions.
[36]The Federal Court of Appeal, in its consideration of the present case, echoed the principles enunciated in CrownForest by writing:
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 166-167.
[37]That Court also said:
While technical explanations attached to treaties are not binding on the Court, they may be accepted as valid guidance (see Kubicek Estate v. Canada, [1997] D.T.C. 5454 at 5456).
Tie-Breaking Rules
[38]The first two tests are set forth in Article IV 2. a) of the Treaty as follows:
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).
Permanent Home
[39]The above provisions respecting "permanent home" are almost identical to those in Article 4 2 a) of the Model which Model served as the basis of the Treaty. That Article reads 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 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);
[40]The following COMMENTARY on Article 4 2 a) of the Model is relevant[10]:
11. The Article gives preference to the Contracting State in which the individual has a permanent home available to him. This criterion will frequently be sufficient to solve the conflict, e.g. where the individual has a permanent home in one Contracting State and has only made a stay of some length in the other Contracting State.
12. Subparagraph a) means, therefore, that in the application of the Convention (that is, where there is a conflict between the laws of the two States) it is considered that the residence is that place where the individual owns or possesses a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration.
13. 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 has 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 a school, etc.).
[41]The Federal Court of Appeal, respecting the present Appellant, said:
In this case, the following commentary on Article IV (2) concerning the definition of "residence" and the use of 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.).
"Article IV (2)" actually refers to the Treaty. However there is no commentary on the Treaty. Clearly the Court intended to refer to the Commentary on Article 4 2. a) of the Model. Indeed the portion of the Commentary quoted by that Court is actually the commentary on the Model provision. I have taken the Commentary into account in my analysis.
[42]Paragraph 26 of the IT Bulletin reads, in part,
A "permanent home" (as that term is used in income tax treaties) may be any kind of dwelling place that the individual retains for his or her permanent (as opposed to occasional) use whether that dwelling place is rented or purchased or otherwise occupied on a permanent basis. ...
(emphasis added)
It is noted, from the emphasis added, that the CRA's views on "permanent home" are more expansive than those contained in the Commentary.
[43]For ease of comprehension, a chart describing the indicia in favour of the Appellant having a permanent home and against the Appellant having a
permanent home in each of the U.S. and Canada follows:
|
Year |
Indicia for Permanent Home in U.S. |
Indicia Against Permanent Home in U.S.
|
|
1993 |
· had own key to cousin's house
|
· did not own or rent her own home
|
|
|
· had own bedroom and washroom at cousin's house; was free to use what she wanted
|
· did not pay rent to cousin although there is evidence that she took cousin and her husband out, and bought them groceries and gifts in lieu of rent
|
|
|
· had own key to Wilsons' condominium
|
· did not pay rent to Wilsons - claimed to have paid rent in kind, by, for instance, buying groceries for them but evidence at original trial indicates that Wilsons had a different taste in food from Appellant and hence did not eat food she said she bought for them
|
|
|
· had own bedroom, washroom facilities at Wilsons
|
· no evidence of her furnishing, or in any other manner, improving either of two afore-mentioned homes
|
|
|
· spent 265 nights in U.S.
|
· not on tenant's board at Wilsons' condominuim; never informed condo of fact that she had moved in
|
|
|
· no one lived at Wilsons' condo except her - Wilsons usually visited on weekends |
· seems to have moved in with cousin and with Wilsons temporarily - until her husband and children received their green cards:
"I told her the situation, that it would be about a year to a year and a half to get my husband his green card and my family, and she said, well, live here. She just said you can live here until you get your green card"
|
|
|
|
· did not have own phone line in Wilsons' home; used Wilsons' phone line
|
|
1994 |
· continued to have access to Wilsons' condominium while living on boat - stored some of her belongings there
|
· lived on newly-purchased boat during summer. Boat had living room, television, stereo, fridge, stove, bathroom with shower, and two beds |
|
|
· bought Mr. Wilson a $5000 radar for his boat; cleaned condominium (said to be in lieu of rent)
|
|
|
1995 |
· same as above |
· March/April: husband and daughter receive green cards |
|
Year |
Indicia for Permanent Home in Canada |
Indicia Against Permanent Home in Canada
|
|
1993 |
· her family rented a home in Windsor
|
· did not own home; sold family home in 1992 (in contemplation of moving to U.S.)
|
|
|
· Appellant visited her family every weekend |
· Family fully intended to emigrate to U.S.; thought they would obtain green cards within a year or so
|
|
1994 |
· Same as above |
· Same as above
|
|
1995 |
· Same as above |
· husband and daughter obtain green cards: March/April |
[44]From a review of the above Commentary and the charted indicia, I conclude that it is possible to determine that the Appellant had a permanent home in Canada. Such review persuades me that it is also possible that the Appellant had a permanent home in the U.S.It could be argued that the prospect of the Appellant's family moving within a short time from Canada to the U.S. suggests that there was no permanent home in Canada. Equally, the Appellant's evidence in conversations with her cousin and the Wilsons suggests an air of temporariness to her residences in the U.S.I conclude that the Appellant had a permanent home in both or neither of Canada and the U.S.
Centre of Vital Interests
[45]In light of the foregoing, I reject the possibility of the Appellant having a permanent home in one country and no permanent home in the other. Accordingly, I am led to examine the second test in paragraph 2 a) of Article IV of the Treaty, namely the question of the Appellant's centre of vital interests. That paragraph of the Treaty, reads as follows:
a) ... 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).
[46]Article 4 2 a) of the Model refers to the Appellant having a permanent home available to him in both States and continues to provide that he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests). Paragraph b) of same refers to the situation in which he does not have a permanent home available to him in either State. In that situation he is deemed to be a resident of the State in which he has an habitual abode. The Treaty differs in that, regardless of whether a person is found to have a permanent home in both States or in neither State, the next step is to examine his centre of vital interests.
[47]The Commentary on the Model is, therefore, less helpful since it is premised, so far as vital interests are concerned, upon the existence only of a permanent home in both States. Paragraph 15 of the Commentary reads as follows:
15. If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.
[48]Another chart showing the indicia of vital interests in Canada and in the U.S follows:
|
Year |
Vital Interests in U.S. |
Vital Interests in Canada
|
|
1993 |
· worked in U.S.full-time
|
· husband, son and daughter were in Canada
|
|
|
· carried Michigan driving licence
|
· visited Canada almost every weekend
|
|
|
· switched from Windsor Operating Room Nurses Association to equivalent in Michigan
|
· had own phone line in Canada, for purpose of retrieving messages
|
|
|
· was member of various other American nursing organizations
|
· retained Canadian nursing license |
|
|
· family visited her often in U.S.
|
· sent money to Canada in amount upwards of $8,500
|
|
|
· had lots of friends living in Michigan
|
· retained Ontario driver's licence
|
|
|
· attended lots of nurses meeting, et cetera, in Michigan
|
· retained and visited Canadian doctor and dentist |
|
|
· as of September, had no Canadian property in her name (closed all Canadian bank accounts)
|
· was a member of the Ontario Health Insurance Plan |
|
|
· had several American credit cards
|
|
|
|
· various recreational activities in Michigan, formerly enjoyed in Ontario
|
|
|
|
· paid taxes as a U.S. resident
|
|
|
1994 |
· lived on boat in summer; boating forms large part of social life during boating season
|
· stored boat in Ontario from winter 1994 to April 1995 |
|
1995 |
· same as above |
· March: she and her husband bought property in Ontario for recreational/rental income purposes
|
|
|
|
· stored boat in Ontario from November through end of 1995 |
[49]My conclusion, upon review of these indicia, is that the Appellant had a centre of vital interests in both Canada and the U.S. Almost all of the Appellant's "economic" activities were carried out in the U.S., while her "personal" relations were much "closer" with Canada. Her profession and work were in the U.S. Her family was in Canada.
Habitual Abode
[50]Article IV 2. b) of the Treaty reads as follows:
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.
[51]It is recalled that the Model as set out above uses "habitual abode" as the test in the following situations:
(1) where a person does not have a permanent home available to him in either State;
(2) where the State in which he has his centre of vital interests cannot be determined.
As a result of this distinction between the Model and the Treaty, the Commentary concerning "habitual abode" is not useful in interpreting the Treaty.
[52]The New Shorter Oxford English Dictionary describes "abode" as, inter alia, "a habitual residence". It describes "habitual" as:
Of the nature of habits fixed by habit; constantly repeated or continued.
... Given to a specified habit; that habitually does or is what is denoted by the noun ... usual, constant, continual.
[53]There follows a chart showing graphically the number of days spent by the Appellant in each of Canada and the U.S.
|
Year |
Days in Canada |
Days in U.S.
|
|
1993 |
100 (approx) |
265 (approx)
|
|
1994 |
100 (approx)
|
265 (approx)
|
|
1995 |
100 (approx) |
265 (approx) |
|
|
mostly on weekends |
|
[54]The combination of evidence describing the nature of the Appellant's lifestyle and activities in the U.S. and the information contained in the foregoing chart make it clear that during the years in question her habitual abode was in the U.S. In accordance with Article IV 2 b) of the Treaty the Appellant
shall be deemed to be a resident of the Contracting State in which he has an habitual abode.
Accordingly, the Appellant, as a result her dual residence and of the application of the tie-breaking rules, was, during the taxation years in question, resident in the U.S.Therefore, she was not taxable in Canada pursuant to the provisions of Section 2 of the Act for her 1993, 1994 and 1995 taxation years.
[55]The appeal will be allowed with costs to the Appellant.
Signed at Ottawa, Canada this 8th day of April, 2005.
|
"R.D. Bell" |
Bell, J.
COURT FILE NO.: 2000-2643(IT)G
STYLE OF CAUSE: Pamela Allchin and The Queen
PLACE OF HEARING: Windsor, Ontario
DATE OF HEARING: November 30, 2004
REASONS FOR JUDGEMENT BY: The Honourable Justice R.D. Bell
DATE OF JUDGMENT: April 8, 2005
APPEARANCES:
|
Counsel for the Appellant: |
John Mill
|
|
Counsel for the Respondent: |
Roger Leclaire |
COUNSEL OF RECORD:
Firm: Mill Professional Corporation
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Ontario
[1] This is referred to by CCH as CANADA - U.S. INCOME TAX CONVENTION (1980) and by Canada Tax Service as CANADA - UNITED STATES TAX CONVENTION (1980).
[2] Organization for Economic Co-operation and Development.
[3] Described above as Treaty.
[4] This is Article 4 of the OECD 1992 Model.
[5] Paragraph 2 a) of the Model.
[6] Interpretation bulletins express the views of the Canada Revenue Agency ("CRA") and do not have the force of law. See, however, Northwest Hydraulic Consultants Ltd. v. Canada, 98 DTC 1839.
[7] The word "Center" in the IT Bulletin is misspelled.
[8] She owned a boat in 1994 and 1995.
[9] The words in quotations have obviously been tailored for ease of comprehension. In fact, the words appear in Article IV of the Convention as "criterion of a similar nature".
[10] Although paragraphs 11, 12 and 13 are set out above they are repeated here for ease of comprehensive flow.