Date: 19980202
Docket: 95-4210-IT-I
BETWEEN:
JEAN-PIERRE CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
G. TREMBLAY, J.T.C.C.
Point at issue
[1] According to the Notice of Appeal and the Reply to the Notice of Appeal, the question is whether the appellant was a Canadian resident during the 1989 taxation year pursuant to s. 2(1) of the Income Tax Act ("the Act").
[2] Since 1988, the appellant has worked in France for the company G.M.T. S.A. His income has already been taxed by the French government. However, his wife and his children live in Canada. There are various points in favour of the respondent's argument and also that of the appellant. In fact, the appellant holds dual nationality, Canadian and French, and has dual residency.
[3] The appellant has the burden of showing that the respondent's assessments are incorrect. This burden of proof results from several judicial decisions, including a judgment of the Supreme Court of Canada in Johnston v. Minister of National Revenue.[1]
[4] In the same judgment, the Court held that the facts presumed by the respondent in support of her decision are also assumed to be true until the contrary is shown. In the instant case, the facts assumed by the respondent are set out in subparagraphs (a) to (h) of paragraph 14 of the Reply to the Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
8. In arriving at the assessment of September 29, 1994 for the 1989 taxation year the Minister assumed inter alia the following facts:
a. during the year on appeal the appellant was married to Geneviève Caron ("his spouse");
b. on her income tax return for the 1989 taxation year the appellant's spouse gave the province of Quebec, Canada as her residence;
c. the spouse's income tax returns for the 1991 and 1992 taxation years and the child tax benefit returns for the 1993 and 1994 taxation years also indicated that she was married and a resident of the province of Quebec;
d. when her income tax return was filed for the 1989 taxation year the appellant's spouse claimed the tax credit for three children under 18 years of age and the federal sales tax credit and reported family allowances of $1,812 and interest of $645 as her only income;
e. the child tax credit application form and federal sales tax credit application attached to his spouse's income tax return for the 1989 taxation year indicated that her spouse, the appellant, had a net income of $13,010;
f. the contract dated August 17, 1990 to purchase the property located at 8310 Rue Racine in Brossard contained the following various information:
i. the purchasers were the appellant and his spouse, residing at 801 Place Soulanges in Brossard;
ii. the appellant stated that he was a resident of Canada within the meaning of the Income Tax Act ("the Act") and within the meaning of the Taxation Act and did not intend to change that residence;
iii. the appellant and his spouse stated they were married for the first time in 1969 and that their civil status had not changed;
g. the appellant did not establish that he had filed an income tax return in France for the 1989 taxation year;
h. at all relevant times the appellant never ceased being a resident of Canada . . .
[5] It was admitted at the start of the hearing that the appellant was a resident of Canada and of France. However, counsel for the appellant asked for a postponement sine die of the application of the Act based on the following arguments.
[6] In a case of this kind, Article XXV of the Canada-France Income Tax Convention (1976) provides the following:
Mutual Agreement Procedure
1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident. The case must be submitted within two years from the first notification of the action which gives rise to taxation not in accordance with the Convention.
[7] Information Circular 71-17R3 of February 22, 1991 deals with "Mutual Agreement Procedures". Paragraphs 2 and 3 read as follows:
2. The "Mutual Agreement Procedure" article in conventions entered into by Canada entitles the Canadian taxpayer to request competent authority assistance when action(s) of either government results in double taxation or taxation not in accordance with the convention.
3. Examples of double taxation covered by these articles are:
A taxpayer is subjected to tax on the same income in Canada and in a foreign jurisdiction on the grounds that the taxpayer is a resident of both Canada and the foreign jurisdiction.
A taxpayer is denied, in a foreign jurisdiction, a credit for taxes paid to Canada on certain income because the foreign jurisdiction claims to have sole right to tax that income.
A corporate taxpayer in Canada is subjected to additional tax because of an increase in the price of goods or services sold to a related company in a foreign jurisdiction, and the foreign revenue authority denies any corresponding adjustment to the related company for this increase.
A taxpayer in Canada, subject to Canadian tax on world income, including income from carrying on business in a foreign jurisdiction, is also taxed by the foreign jurisdiction on that income. At the same time, Canada takes the position that, under the provisions of the particular convention, the foreign jurisdiction should exempt that income from tax.
[8] Paragraph 9 of Information Circular 71-17R3 reads as follows:
9. A request for competent authority consideration made on the basis of a formal proposal will not delay or suspend the normal Canadian reassessment procedure followed by Revenue Canada, Taxation; rather, the two procedures will proceed concurrently and independently.
[9] But, according to paragraph 13:
13. The Canadian competent authority will not assist if
. . . . .
(f) the foreign government refuses to deal with the case.
[10] Tax appeals pertaining to reassessments initiated by Revenue Canada
16. Although in most cases the competent authorities reach agreement and relieve double taxation or taxation not in accordance with the convention, there is no appeal procedure under the tax conventions for dealing with cases when agreement cannot be reached. Accordingly, Canadian taxpayers may also wish to protect their rights of appeal to Canadian courts in the event that the competent authorities do not resolve the issue. To start the appeal process, the taxpayer must take action within 90 days from the date of mailing the notice of assessment, by filing in duplicate, a notice of objection in prescribed form setting out the reasons for the objection and all relevant facts. A separate notice of objection for each disputed assessment must be sent by registered mail to the Deputy Minister of National Revenue for Taxation, 875 Heron Road, Ottawa, Ontario, K1A 0L8. Prescribed forms may be obtained from any Revenue Canada Taxation district office.
17. It is Canadian policy that if the taxpayer proceeds with the appeal process while negotiations with the foreign competent authority are in progress, these latter negotiations will be terminated. If the matter is later resubmitted for competent authority consideration because double taxation or taxation not in accordance with the convention remains following an appeal settlement or a court decision, the Canadian competent authority will supply the foreign tax authorities with the details of, and rationale for, the outcome of the appeal process. Decisions rendered by Canadian courts or settlements reached cannot be changed, that is, the Canadian competent authority has no room for negotiation. Any relief from double taxation or relief from taxation not in accordance with the convention will be possible only if the foreign competent authority agrees to grant such relief. However, a finding by a Canadian court may not be effective or persuasive in foreign jurisdiction, and it is possible that double taxation or taxation not in accordance with the convention could still exist.
[11] In the instant case, the appellant, through his French counsel, began proceedings in 1996 for his case to be dealt with administratively by the competent authorities, as provided for in clause 25 of the Tax Convention cited above.
[12] In a case of the same type, Malcolm Fisher,[2] the taxpayer Fisher had dual Canadian and Japanese residence.
Judge Bowman of this Court summed up the legal position and his conclusion at 846 reads as follows:
I do not exclude the possibility that he may also have been resident in Japan in 1987 and 1988. That is altogether possible. He certainly had ties there and the law recognizes dual residency. If that is so he may be able to invoke the competent authority procedures under the Canada-Japan Income Tax Convention (1986), as described in Information Circular 71-17R3. Paragraph 2 of the Protocol to the Canada-Japan Convention reads as follows:
2. With reference to paragraph 2 of Article 4 of the Convention, where an individual or a company is a resident of both Contracting States the question shall be settled by mutual agreement by applying the following rules:
(a) in the case of an individual,
(i) 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 (centre of vital interests);
(ii) 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;
(iii) 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;
(b) in the case of a company, it shall be deemed to be a resident of the Contracting State of which it is a national.
The determination under that provision is something that must be made by the competent authorities of the two contracting states. It is not a matter for this Court.
For the purposes of this appeal my authority extends only to determining whether, under the law of Canada, he was or was not resident in Canada in 1987 and 1988. I have concluded that he was and accordingly the appeals are dismissed with costs.
[13] Based on the admissions by the parties, the appellant in the instant case has dual residency. At the close of the hearing of this case the undersigned had decided to grant a postponement sine die, impliedly of the application of the Act, pending the decision to be made in accordance with the mutual agreement procedure between the two states under Article XXV of the Income Tax Convention (1976).
[14] However, on closer examination this Court does not have jurisdiction to render such a decision. The only decision this Court can render under the rules of law in Canada is to confirm the assessment as the appellant is a resident of Canada and to dismiss the appeal.
[15] The dispute concerning dual residency will have to be resolved by the mutual agreement procedure by the competent authorities of the two states.
Conclusion
[16] The appeal is dismissed.
Guy Tremblay
J.T.C.C.
Québec, Canada, February 2, 1998.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 3rd day of March 1998.
Mario Lagacé, Revisor