Date: 19970929
Docket: 96-1454-IT-G
BETWEEN:
DALE BOSTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Mogan, J.T.C.C.
[1] From 1967 until 1988, the Appellant resided in Canada and was employed by Imperial Oil Limited. In September 1988, the Appellant moved to Malaysia to take up a new position within the same Imperial Oil/Exxon corporate group. For the taxation years 1989, 1990, 1991 and 1992, the Minister of National Revenue assessed the Appellant on the assumption that he was resident in Canada. The Appellant has appealed from those assessments on the basis that he was not resident in Canada during those four years. The only issue in this appeal is whether the Appellant was resident in Canada in all or any one of those years.
[2] At the commencement of the hearing, Counsel for the Respondent acknowledged that the notice of assessment under appeal for 1989 was issued after the limitation period in subsection 152(4) of the Income Tax Act. Accordingly, the Respondent admits that the appeal for 1989 will have to be allowed because the Minister does not make any claim with respect to gross negligence or misrepresentation concerning that taxation year.
[3] The Appellant was born in England in February 1939. He was educated in England and acquired a degree in mechanical engineering from Cambridge University. During his education, he worked summers at Rolls Royce and apprenticed at the Aero Engines division of Rolls Royce. During the years 1965 to 1967, the Appellant worked for a corporation named Foster Wheeler in the UK designing projects for the petro chemical industry.
[4] In 1962, the Appellant married and he and his wife (Dawning) have three sons born in 1964, 1966 and 1969. In 1967, the Appellant and his wife decided to move to Canada because there would be better opportunities for their children and for himself as a professional engineer. Prior to 1967, the Appellant had never been to Canada but he found immediate employment with Imperial Oil at Sarnia, Ontario, because of his experience in the UK designing projects for the petro chemical industry. This was the beginning of a lifelong employment career between the Appellant and Imperial Oil or its parent company, Exxon Corporation. In the course of that employment, the Appellant was moved a number of times. The Appellant and his family lived at Sarnia for approximately six years from 1967 to 1973; they lived in Calgary from 1973 to 1975; and in Toronto from 1975 to 1978. In 1978, the Appellant was offered the position of assistant manager at the Strathcona Refinery at Edmonton, Alberta. He accepted that position and remained in Edmonton for approximately 10 years.
[5] For the period 1967 to 1988, the Appellant had been an employee only of Imperial Oil Limited in Canada. He gave a brief description of the Imperial Oil/Exxon organization as follows. Exxon Corporation is the parent company located in the USA. Imperial Oil Limited is a wholly owned Canadian subsidiary of Exxon Corporation operating all of the Exxon facilities in Canada. Exxon Corporation International is another subsidiary of Exxon Corporation operating everything outside of North America. In 1988, the Appellant was offered the position as deputy manager of the Exxon refinery at Port Dickson in Malaysia. He felt some pressure to accept the position in Malaysia because it was the policy of Exxon and Imperial Oil to move senior management employees about every five or six years; and he had been in Edmonton for about 10 years. Therefore, he knew that he was slated for a move because in 1988 he was only 49 years of age and a long way from retirement. He had thought that the most likely places for a corporate move would be to Toronto, Ontario or Fort McMurray, Alberta and neither location appealed to him. He therefore accepted the posting to Malaysia even though he had never been to that country and knew that it was a commitment for at least three years. The job in Malaysia appealed to the Appellant because the manager at Port Dickson was slated to retire in about three years and the Appellant was confident that, if he performed well during those three years, he would be offered the job as manager of the Port Dickson refinery. It had always been his ambition to become the number one man in a significant Exxon refinery.
[6] Once the Appellant accepted the assignment in Malaysia, he and his wife had to decide whether they would both move there or whether he would go there and she would remain in Edmonton. She was employed by the City of Edmonton as the director of some kind of senior citizen's service and paid a salary of approximately $25,000 a year. The Appellant stated that he and his wife were having some marriage difficulties in 1988. If he had been offered only a move in Canada, he would have been content to live alone in an apartment in a distant city like Toronto or Fort McMurray with his wife remaining in Edmonton because of the marriage troubles. It was on that basis that he was content to go to Malaysia alone. According to the Appellant, he and his wife agreed that his going to Malaysia alone might be the better course of action at least in the short term.
[7] Once the decision was made, the Appellant took all the steps one would expect of a person moving to the other side of the world for three years. Exxon obtained a work permit for the Appellant in Malaysia. He sold his car in Alberta. His Alberta health plan was cancelled and Exxon took out private health insurance for him. He closed out all of his accounts at the Royal Bank and opened a savings account at the Bank of Nova Scotia because that bank had a branch at Kuala Lumpur, the capital of Malaysia. He allowed his membership in the Edmonton Petroleum Club to lapse. One of his hobbies was flying model guided planes and he allowed his participation in the Model Guided Plane Association to lapse. His wife continued to reside in the family home at 29 Marlborough Road, Edmonton and, at that time, their youngest son was still living at home.
[8] There was a special arrangement made within the Exxon/Imperial Oil organization for the Appellant's compensation. According to Exxon policy, the Appellant remained on the payroll of Imperial Oil Canada. His new salary for the new position in Malaysia was paid by Imperial Oil Canada as if the Appellant were remaining in Canada as a regular employee of Imperial Oil. Also, any extra benefits like pensions were continued as part of his compensation with Imperial Oil. All of these employment charges although paid directly by Imperial Oil Canada to the Appellant were cross-charged by Imperial Oil to Exxon Corporation International as the employer of the Appellant at Port Dickson in Malaysia. In accordance with this arrangement, his salary was deposited by Imperial Oil into the Appellant's bank account in Edmonton subject to the fact that he had a draw of approximately $5,000 per month which was paid to him in cash in Malaysia to provide him with the ordinary costs of living.
[9] The Appellant moved from Canada to Malaysia in the last few days of September 1988. He stayed at a hotel in Malaysia for the first few weeks and then moved into a house owned by Exxon for the use of its refinery manager. Apparently, the manager of the Port Dickson refinery at that time was a native of Malaysia and preferred to live in his own house even though Exxon had owned this house for a long time and had acquired it for the express purpose of providing a residence for its refinery manager. Therefore, the Appellant had the use of the Exxon house immediately even though at that time, he was only assistant manager. His employer charged him rent for the use of the house at the rate of approximately $1,000 per month which was charged against his salary.
[10] Exhibit A-8 is a bill of lading showing the shipment of the Appellant's personal effects from Edmonton to Malaysia. This exhibit shows that he took what appears to be all of his clothes and personal effects plus an airplane kit for model guided planes and a radio control transmitter for his hobby of model guided planes. He stated that once he got to Malaysia, he was so busy that he had no time for what had been his primary hobby in Edmonton. He purchased a car in Malaysia and acquired a Malaysian driver's licence, a copy of which is Exhibit A-11. He joined the Port Dickson yacht club which he explained was not really a yacht club at all but mainly a social club providing a number of recreational facilities. Port Dickson is on the west coast of Malaysia approximately 90 kilometres Southwest of Kuala Lumpur on the Malaka Strait. For the 1988 taxation year, the Appellant filed a Canadian income tax return on the basis that he was resident in Canada only from January to September, 1988.
[11] In the Appellant's own words, he loved everything about his assignment in Malaysia. The Port Dickson refinery was approximately 25 years old and smaller than the Strathcona refinery in Edmonton. Its capacity in 1988 was 50,000 barrels per day but it was in fact producing only 45,000 barrels. Just prior to the Appellant's move to Malaysia, Exxon had decided to modernize the Port Dickson refinery. It was a major part of the Appellant's responsibilities to supervise the upgrading of that refinery. When the Appellant retired in 1995, the capacity of the Port Dickson refinery was 80,000 barrels per day and it was refining a much higher quality of petroleum product than when he arrived there in 1988. When he was assistant manager at the Strathcona refinery in Edmonton, he had few responsibilities outside of the company but, in Malaysia, he was heavily involved in working with government authorities at all levels. He stated that in a third world country like Malaysia, senior government officials wanted to be involved with the senior management of large foreign corporations with substantial operations in the country. It was in this capacity that he dealt with senior members of the Malaysian Government, both in Port Dickson and in Kuala Lumpur. He was required to be in Kuala Lumpur at least once a week.
[12] He joined the petroleum club at Kuala Lumpur. He opened a bank account at the Bank of Nova Scotia in Kuala Lumpur and also an account at the Standard Chartered Bank at Port Dickson. Both were chequing accounts. Also, he acquired two Malaysian credit cards. There was a medical clinic at Port Dickson with three family doctors and the Appellant said that he would see anyone of those three doctors. Also, he saw a dentist at regular intervals in Port Dickson. During his third year in Malaysia, he joined the Port Dickson Golf Club in 1991.
[13] In the period 1989 through 1992, the Appellant made only two 14-day visits to Edmonton from September 18 to October 2, 1990 and from October 20 to November 2, 1992. While in Canada, the Appellant stayed at the family home on Marlborough Road in Edmonton. During the calendar years 1989 and 1991, the Appellant did not come to Canada at all. The Appellant's wife travelled to Malaysia more frequently. Specifically, the Appellant's wife made eight different trips to Malaysia during the years 1989 to 1992 as indicated in the table below:
Dates Number of Days
December 15, 1988 - January 15, 1989 32
May 2, 1989 - May 23, 1989 22
October 8, 1989 - October 29, 1989 22
December 16, 1989 - January 10, 1990 26
June 12, 1990 - June 30, 1990 19
December 24, 1990 - January 14, 1991 22
September 4, 1991 - September 19, 1991 16
December 15, 1991 - January 6, 1992 23
The Appellant's wife stayed with the Appellant during her visits to Malaysia.
[14] When the Appellant visited Canada in the latter part of 1992, he thought that he and his wife should either separate or divorce. In 1991, she had broken her ankle and although it was healing well the nerve ends did not join. Her foot could not react well to heat or cold and the warm climate of Malaysia was easier on her foot than the cold winters in Edmonton. Because of his wife's long rehabilitation process from the breaking of her ankle in 1991, the Appellant did not press very hard with his proposal that they should separate or divorce in 1992. The result was that there was no formal separation and the marriage has continued up to the present time.
[15] Exxon had a policy of granting to each expatriate person working in a foreign country a cash amount each year equal to the full economy fare from the place of foreign posting (Malaysia) to the home base of the employee (Edmonton). This amount was received in cash. The Appellant hardly ever used this amount to fly back to Canada but his wife usually used it to fly out to Malaysia.
[16] The Appellant's annual salary was in the range of $160,000 which translated into a monthly amount of approximately $13,000. Although this salary was paid by Imperial Oil in Edmonton and cross-charged to Exxon Corporation International (Malaysia) as described above, there was no income tax withheld at the source because the employer knew that the Appellant was working full-time outside Canada. Accordingly, on a monthly basis, he drew about $5,000 cash in Malaysia; $3,000 was paid into an employee's savings plan; and approximately $5,000 went into his personal bank account in Edmonton. His life insurance while in Malaysia was maintained by Imperial Oil as part of his salary and benefits package but the cost of that insurance was cross-charged to Exxon Corporation International along with the gross amount of his salary and any other employee benefits. The Appellant paid income tax in Malaysia.
[17] While he was employed in Malaysia, the Appellant retained some of his investments in Canada. He stated that his wife had a hobby of looking at "open houses" in the residential real estate market. In the fall of 1989, she found a "show home" in Edmonton which she thought would be a good real estate investment. After discussions with her, they decided to buy this together as an investment. The transaction was closed in the winter of 1989/1990 and the Appellant's wife arranged to rent it to a third party. The only real estate which he owned in Canada was his one-half ownership with his wife in the family home on Marlborough Road and in the show home which was purchased in the winter of 1989/1990. He did not make any real estate investments in Malaysia because he had the use of the employer's house which was designated as a residence for the refinery manager and for which he paid a monthly rent of approximately $1,000 as described above. He maintained his registered retirement savings plan (RRSP) in Canada; a company savings plan; and a few personal shares which he held directly in certain Canadian public listed companies. He belonged to the Canadian Society of Mechanical Engineers and also to the Association of Professional Engineers and Geologists of Alberta. He maintained these memberships even while living in Malaysia and he did not acquire any similar professional memberships in Malaysia.
[18] The person who was the manager of the Port Dickson refinery in 1988 did in fact retire in 1991 and the Appellant was promoted from deputy manager to manager. Therefore, his professional ambition to be number one in a significant refinery was fulfilled. In 1990, Exxon came out with an early retirement package available to its senior management employees. In 1991, the Appellant signed on accepting the early retirement package and expecting to retire in the latter part of 1994. As events transpired, the Appellant did not retire until the summer of 1995 at which time his employment with Exxon terminated. Upon the termination of his employment in Malaysia, the Appellant returned to Edmonton and took up residence again with his wife in the family home at 29 Marlborough Road.
[19] The Appellant stated that when he came back to Edmonton in mid-September 1995, he and his wife both tried to make a go of their marriage. In late 1995, he started sending résumés to people in Malaysia hoping to find fresh employment there. In January and February, 1996, the Appellant and his wife went to Malaysia with the idea that he would seek fresh employment and that they might possibly both live there. She came back to Canada in February 1996 and he went on to Thailand to look for work. He did actually have a job in Thailand which lasted exactly 12 months from August 1996 to July 1997, but when that job came to an end he came back to Canada. He and his wife are now working out some plan of separation.
[20] When attempting to determine in law the residence of an individual for income tax purposes, the leading case is the decision of the Supreme Court of Canada in Thomson v. Minister of National Revenue, [1946] S.C.C. 209. In that decision, Rand J. stated at pages 224-225:
For the purpose of income tax legislation, it must be assumed that every person has at all times a residence. It is not necessary to this that he should have a home or a particular place of abode or even a shelter. He may sleep in the open. It is important only to ascertain the spatial bounds within which he spends his life or to which his ordinary or customary living is related. ...
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. On the lower level, the expressions involving residence should be distinguished, as I think they are in ordinary speech, from the field of "stay" or "visit".
[21] Applying the above principle to the Appellant's situation in 1989-1992, it is easy to conclude that he was resident in Malaysia. He was employed there in a senior managerial capacity which required his full-time attendance every day. He maintained a dwelling there in which he slept on a regular basis, took his meals, and kept his personal effects. He joined the local yacht club which he described as primarily a social and recreational club; he opened bank accounts and obtained local credit cards. He also purchased a car and obtained a Malaysian driver's licence. Although the Appellant had strong connections with Canada because his wife continued to live in the family home in Edmonton, and he had three adult sons living in Canada, the fact is that he did not come back to Canada at all in 1989 or 1991 and returned to Canada for only 14 days in each of 1990 and 1992. Applying the specific words of Rand J. in Thomson to the Appellant's situation, I find that the Appellant after 1988 had settled into or maintained or centralized his ordinary mode of living with its accessories and social relations, interests and conveniences in Malaysia.
[22] The Respondent argued that the common-law test of residence should not be applied to the Appellant because his status as a resident of Malaysia would have to be determined by Malaysian law. If I were deciding the Appellant's status as a resident of Malaysia for purposes of Malaysian law, there would be some merit to that proposition. I am not applying Malaysian law but only Canadian law to determine firstly whether the Appellant was resident outside Canada in the relevant years. I reject the Respondent's argument that I cannot apply the common-law test of residence as a first step to determine whether the Appellant was resident outside Canada in the relevant years in order to clear the way for a subsequent finding as to whether the Appellant in those same years may or may not have been resident in Canada.
[23] In the passage quoted above, Rand J. stated "... it must be assumed that every person has at all times a residence". During the relevant period, the Appellant had to be resident in Canada or in Malaysia or perhaps in both countries. I decided to determine first whether he was resident in Malaysia because, on the evidence before me, he spent almost all of his time in Malaysia during that period. Having found that the Appellant was resident in Malaysia, I am free to determine whether he was resident in Canada at the same time.
[24] In The Queen v. Reeder, 75 DTC 5160, the Federal Court Trial Division held that the taxpayer in that case was resident in Canada in 1972 but Mr. Reeder's absence from Canada in 1992 was for a period of only 246 days from March 29 until December 1, 1972. Counsel for the Respondent relied on the Reeder decision because the trial judge, Mahoney J., made the following statement at page 5163:
... Throughout, his ties of whatever description have all been with Canada, save only those ties, undertaken during the term of his absence, which were necessary to permit him and his family to enjoy an acceptable and expected lifestyle while in France. That absence was temporary even though, strictly speaking, indeterminate in length. The ties in France were temporarily undertaken and abandoned on his return to Canada.
Counsel for the Respondent argued that this passage is an accurate description of the Appellant's residence in Canada and his temporary ties with Malaysia. In my opinion, the facts in this appeal are easily distinguished from the facts in Reeder. The primary distinction is the Appellant's long absence from Canada. By December 31, 1992, the Appellant had been absent from Canada for four years and three months and he continued to remain in Malaysia for an additional two and one-half years after December 31, 1992.
[25] In Griffiths v. The Queen, 78 DTC 6286, a long-time resident of Canada decided to retire to the British Virgin Islands where he lived on his yacht which was registered in Canada. When deciding that Mr. Griffiths had ceased to be resident in Canada, Collier J. stated at page 6288:
I see nothing incompatible with a severance of residence, but the keeping of investments in this country.
In Ferguson v. M.N.R., 89 DTC 634, the taxpayer went to Saudi Arabia under a series of one-year contracts. His wife remained in the family home in Canada while Mr. Ferguson lived in a compound in Saudi Arabia. At vacation time, he would visit Canada or travel with his wife in Europe. Sarchuk J. decided that Mr. Ferguson was resident in Canada at all relevant times because he had not in mind or in fact settled into or maintained his ordinary mode of living with its social relations, interests and conveniences in Saudi Arabia. I would distinguish this appeal from the Ferguson case because the Appellant went to Malaysia for a minimum period of three years; he had significant employment responsibilities there; he hoped to stay on after three years if he became manager of the Port Dickson Refinery; and he became active in the residential community of Port Dickson.
[26] A long history of case law teaches us that residence is very different from domicile. A person can be domiciled in a particular jurisdiction without being physically present there. In order to be resident in a particular jurisdiction, however, it is usually necessary to be present there at least part of the time. The Appellant's presence in Canada during the four years 1989, 1990, 1991 and 1992 in terms of time was minuscule. In fact, he was here for only 14 days in 1990 and for another 14 days in 1992. He was not here at all in 1989 or 1991. If as Rand J. observed in Thomson, the word residence is to be distinguished from "stay" or "visit", I should think that the time which the Appellant spent in Canada in 1990 and 1992 is more accurately characterized as a visit to Canada in each of those years. I find that the Appellant was not resident in Canada in the years 1989 to 1992.
[27] If I should be wrong in my conclusion that the Appellant was not resident in Canada during the relevant years, and if he should be resident in both Canada and Malaysia, his residence would then be determined under the so-called "tie-breaker rules" of the Canada/Malaysia Income Tax Agreement. Paragraph 2 of that agreement provides as follows:
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 closest (hereinafter referred to as his "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.
[28] Applying paragraph 2(a) of the tie-breaker rules, I conclude that the Appellant had a permanent home available to him both in Canada and Malaysia because he had the family dwelling on Marlborough Road in Edmonton, and he had the refinery manager's residence in Port Dickson. This would bring me to the second half of the tie-breaker rule in paragraph 2(a) in which he is deemed to be resident in the contracting state "with which his personal and economic relations are closest". On the facts of this case, I find that the Appellant's personal relations are closer to Malaysia than to Canada. His personal life was centred in Malaysia. He belonged to social clubs there and had dropped all his affiliation with social clubs in Canada. His wife came to Malaysia for Christmas in each of the years 1988, 1989, 1990 and 1991. In most of those years, she was accompanied by one or two of their sons. Although his wife and three adult sons remained in Canada, they were not a big enough personal magnet to draw him to Canada because he came back to this country only twice, in 1990 and 1992 respectively, for short periods already described above. How can I ignore the fact that the Appellant spent more than 300 days each year in Malaysia?
[29] The Appellant's economic relations are closer to Malaysia than Canada because he reported for work there every day; he was paid only for the services he performed in Malaysia; he was the deputy manager (and after 1991 the manager) of a substantial oil refinery in Malaysia; and his lifelong career with Exxon/Imperial Oil depended upon his performance as a senior manager of that refinery.
[30] Therefore, as stated above, if I should be wrong in my conclusion that the Appellant was not resident in Canada in 1990-91-92, then I have no hesitation in finding that the Appellant's personal and economic relations are closer to Malaysia than to Canada under the tie-breaker rules in paragraph 2(a) of the Canada/Malaysia Income Tax Agreement.
[31] Having regard to the pattern of the Appellant's life from and after October 1, 1988, I find that the Appellant was resident in Malaysia throughout the four years under appeal, 1989 to 1992, and that he was not resident in Canada in any one of those years. For the above reasons, the appeals are allowed, with costs.
"M.A. Mogan"
J.T.C.C.