Date: 20010907
Docket: 1999-2647-IT-G
BETWEEN:
EMAIN KADRIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] These appeals are from assessments for 1992, 1993 and 1994. The central issue is whether the appellant was a resident of Canada in those years. The Minister of National Revenue assessed the appellant for those years on the assumption that he was. He assessed tax on the appellant's income which he earned in Kuwait in those years, as well as on an alleged benefit under section 15 of the Income Tax Act conferred on the appellant or his spouse resulting from the use of an automobile owned by a corporate dealership owned by the appellant. In addition the Minister imposed a penalty for the appellant's failure to file income tax returns.
[2] If the appellant was not resident in Canada in the years in question the Part I tax imposed on him must be deleted. So far as the section 15 benefit is concerned no alternative position was advanced that even if the appellant was a non-resident withholding tax should be imposed under paragraph 214(3)(a) on the value of the benefit. Therefore I shall not consider the point further.
[3] If the appellant is successful in his contention that he was a non-resident in 1992, 1993 and 1994 the penalties must be deleted. If he is not, Mr. Trussler contends that a penalty under subsection 162(1) for failure to file a return is susceptible of a due diligence defence (Consolidated Canadian Contractors Inc. v. The Queen, [1998] G.S.T.C. 91).
[4] Counsel for the respondent agreed with the proposition that a due diligence defence is available with respect to a penalty for failure to file a return, but did not concede that due diligence has been made out.
[5] For reasons that are set out more fully below I do not think that the appellant was resident in Canada in the years in question and accordingly the subsidiary issues need not be considered.
[6] The appellant did not sojourn in Canada for 183 days or more in any of the years 1992, 1993 and 1994 and so the statutory condition in paragraph 250(1)(a) is not met. This does not of course end the matter because under subsection 250(3) a reference to a person who is resident in Canada includes a person who is "ordinarily resident". It was on the basis of "ordinarily resident" that the case was presented by both counsel.
[7] The facts are not substantially in dispute. The most efficient way of setting out the facts is to reproduce the relevant portions of the pleadings. Unless it is indicated to the contrary the allegations or assumptions are admitted by opposing counsel.
[8] The essential facts relied on by the appellant are
6. Between 1977 and 1990, the Appellant lived in Kuwait as a full time permanent resident. Indeed, the Appellant was married while in Kuwait and his three children were born and educated in Kuwait during the same 13-year period.
7. The Appellant worked for the same employer in Kuwait between 1977 and the time of his resignation from such employment in December of 1994.
Admitted except respondent says the appellant resigned in July 1994. The evidence is he resigned in August to take effect in December 1994.
8. Prior to 1977, the Appellant lived in Canada.
9. The Appellant and his family were vacationing in Canada on August 2, 1990. On August 3, 1990, the Gulf War broke out. Thereupon, the Appellant immediately ceased his vacation and returned to his employer's headquarters in New York, New York and in Dubai, Kuwait for the purpose of providing management assistance throughout the Gulf War crisis. The Appellant's wife and children remained in Canada during the Gulf War.
10. In March, 1991, following the liberation of Kuwait, the Appellant again took up permanent residence in Kuwait.
Admitted by respondent except for word "permanent".
11. Following the Gulf War (March 1991), the Appellant attempted to obtain special government permission for his wife to return to Kuwait. Such approval was denied because the Appellant's wife was a Jordanian National. The Appellant was under the impression that the Kuwaiti ban affecting Jordanian Nationals was temporary and would be lifted, thereby allowing the Appellant's wife to lawfully return to Kuwait.
Not admitted by the respondent but established in evidence.
12. Between March 1991 and June 1995, the Appellant attempted to gain the assistance of the Canadian Embassy in Kuwait for the purpose of allowing his wife to return to Kuwait. The Appellant's efforts and the efforts of the Canadian Embassy were unsuccessful in this regard.
Not admitted by respondent but established in evidence.
13. When it became clear to the Appellant that he was not going to be successful in obtaining a special dispensation to permit his wife return to Kuwait, he resigned from his employer on December 16, 1994. The Appellant then joined his wife and family in Canada.
Not admitted by respondent but established in evidence.
14. The Appellant lived in Canada as a permanent resident after 1994.
Admitted by respondent. It was also established in evidence that the appellant and his family ceased to be residents of Canada in 1997 and moved to Dubai.
[9] The assumptions upon which the Minister relied were the following. They are admitted by the appellant unless it is indicated otherwise.
a) At all material times, the Appellant was a Canadian citizen and held a Canadian passport;
b) The Appellant held a Canadian drivers license since 1968 and his home address has been 23 Frontenac, London, Ontario;
This is admitted except that 23 Frontenac was his parents' home.
c) Prior to 1977, the Appellant was a resident of Canada;
d) In 1977, the Appellant moved to Kuwait and lived and worked there until 1994;
e) The Appellant lived in an apartment in Kuwait provided by his employer from 1991 to 1994;
f) The Appellant was employed by the same Kuwaiti employer until December, 1994;
g) The Appellant submitted his resignation to his Kuwaiti employer in August, 1994;
h) The Appellant lived in Kuwait with his wife, a Jordanian national, and three children until August, 1990;
i) On August 3, 1990, Iraq invaded Kuwait;
This is admitted except the invasion commenced on August 2.
j) At the time of the Iraqi invasion, the Appellant and his family were visiting his parents in London, Ontario;
k) Beginning in September, 1990, the Appellant maintained a rented home in London, Ontario for his family;
l) In September, 1990, the children of the Appellant were enrolled in schools in London, Ontario and they attended schools in London, Ontario during 1991, 1992, 1993 and 1994;
m) Kuwait was liberated from Iraqi occupation in March, 1991;
n) During the Iraqi occupation, the Appellant continued to work for his Kuwaiti employer from their offices in New York and Dubai, Kuwait;
Admitted by appellant, except that Kuwait should be deleted. Respondent agrees.
o) After the liberation of Kuwait, the Appellant returned to work in Kuwait and his wife and children remained in Canada;
p) The Appellant's wife was unable to return because of a Kuwaiti law passed after the occupation that prohibited Jordanian and Palestinian nationals from returning;
q) Since spring of 1991, the Appellant has maintained Ontario hospitalization coverage of his family;
r) In 1991, the Appellant's wife and family applied for and were given landed immigrant status;
Not admitted with respect to words "and family".
s) In April, 1991, the Appellant shipped some of the personal effects of his and his family from Kuwait to Canada;
t) In June, 1991, the Appellant financed the purchase of a $457,000.00 home in London, Ontario by his mother, Jessie Kadrie;
u) The Appellant was the guarantor of the $377,000.00 mortgage on the house and made the monthly mortgage payments;
v) The Appellant's wife and children lived in this house after June, 1991;
w) When the Appellant was in Canada in the 1991 to 1994 years, he lived with his wife and family;
x) Throughout the period 1992 to 1994, the Appellant provided a vehicle for use by him and his wife through one of the car dealerships that he was associated;
y) The car dealerships were operated by corporations in which the Appellant was a shareholder;
z) The use of the vehicle was a benefit conferred on the Appellant as shareholder of the corporation;
Not admitted.
aa) The value of the benefit conferred on the Appellant in the 1992, 1993 and 1994 taxation years was $4,074.00, $4,812.00 and $2,160.00 respectively;
Not admitted.
bb) Jessie Kadrie is a senior citizen living on a fixed income;
cc) At all material times, Jessie Kadrie and her husband maintained their home at 23 Frontenac in London, Ontario and used this address as their mailing address;
dd) In early fall, 1992, the Appellant commenced negotiations to purchase a Toyota dealership in London, Ontario;
ee) In February, 1993 the Appellant purchased a Toyota dealership in London, Ontario;
(dd) and (ee) are admitted subject to two qualifications - the negotiations were by a representative and the purchase was by a corporation owned by the appellant. This was established in evidence.
ff) In August, 1994, the Appellant purchased a Toyota dealership in Richmond Hill, Ontario;
Admitted subject to the qualification, which is accepted by the respondent, that the dealership was bought by a corporation owned by the appellant.
gg) In September, 1994, the Appellant shipped to Canada from Kuwait the remaining personal effects of him and his family;
hh) Prior to 1991, the Appellant, through either direct ownership or through a holding company, became the controlling shareholder of 2 Canadian corporations, Canadian Premier Investments Inc. and Canadian Pioneer Developments Inc.;
ii) Since early 1991, the Appellant has had a Canadian bank account and a Canadian credit card;
jj) The Appellant did not earn any Canadian source income before 1995;
kk) The Appellant did not file Canadian tax returns for the 1992, 1993 and 1994 taxation years;
ll) The Appellant spent an unspecified amount of time in Canada in 1991, approximately 90 days in each of 1992 and 1993 and approximately 110 days in 1994;
This is not admitted. The appellant's evidence, which I accept is that he spent 40 to 42 days in Canada in 1992 and 1993 and about 50 to 67 days in Canada in 1994.
mm) Commencing in 1991, the Appellant's personal and economic relations (center of vital interest) were closest to Canada, not Kuwait;
This is not admitted. The expression used in this paragraph is one used in Canada's numerous income tax conventions based on the OECD model, but it is not part of the jurisprudence relating to the term "resident" or "ordinarily resident".
nn) In 1992, 1993 and 1994, the Appellant was resident in Canada;
Not admitted.
oo) In the 1992, 1993 and 1994 taxation years, the Appellant's earned income in Kuwait in the amounts of $123,291.00, $128,229.00 and $137,685.00 respectively, which income was taxable in Canada;
The amounts are admitted and the fact they were earned in Kuwait but otherwise the paragraph is not admitted.
pp) In 1992, 1993 and 1994, the Appellant was not subject to and paid no tax in Kuwait on income earned in Kuwait.
[10] These facts can be briefly supplemented by a few other points established in evidence. The appellant was born in London, Ontario in 1952. His parents are of Lebanese extraction. He studied history at Western University and in 1977 went to Baghdad to perfect his knowledge of Arabic at the University of Baghdad. He moved to Kuwait in 1978 and got a job with Alghanim Industries, a company owned by a wealthy Kuwait family. It was a diversified multinational representing large US and English multinational corporations.
[11] He met his wife in Kuwait and married her in March 1979. She had been born in Damascus and was a Jordanian national but had lived in Kuwait since she was five. They have three children aged three, seven and eight. They lived in rented apartments or houses but by the time of the Gulf war they had started building a house. By the time the war was on it was 50 to 60% completed.
[12] The appellant rose in the Alghanim company and became the highest-ranking executive in the company who was not a family member. He was Executive V.P. and Chief Operating Officer in charge of the operating committee with 40 operating divisions and 4,500 employees reporting to him.
[13] When the Gulf war broke out the appellant and his family were visiting family in London, Ontario. His wife's family put his and his wife's furniture in containers and sent it to Jordan and took his valuables (jewellery, carpets, art work, personal records and other valuables to their home).
[14] He returned to Kuwait on February 28, 1991 and moved into a furnished apartment provided by the company. Prior to that time he lived in New York where the Alghanim family was staying - they had two residences in the U.S.
[15] In New York he headed a crisis management team for the company in which he dealt with over 50 multinationals through the world with whom the company had business relations or the numerous employees of the company.
[16] He also headed a team whose acronym was KERP set up by the Government of Kuwait. I did not make a note of what this stands for but its function was to deal with emergency vehicles - police, ambulance, fire - after the devastation wrought by the Iraqui invaders.
[17] During this time he was constantly trying to get his wife and family back to Kuwait but the Government of Kuwait had issued an edict that Jordanian nationals who were not in Kuwait at the end of the war could not return. The appellant hoped this edict would be lifted but it never was. By 1994, the house he had started to build was completed and he intended to move into it with his family but was unable to bring his wife back. He did not list it but when approached by a third party he agreed to sell it in 1994.
[18] His responsibilities after the invasion until he left the company in 1994 involved extensive dealings with employees, most of whom were attempting to cope with the disruption caused by the war, handling financial matters and taking care of shipments in transit.
[19] He had investments in Canada - three automobile dealerships one of which he owned through corporations. He assisted his mother to buy a home and guaranteed a mortgage but he was not present when this deal closed and did not see the house until after his mother bought it. This was a necessity because his wife and family were living in Canada against their will because they could not return to Kuwait. His wife obtained landed immigrant status to ensure that she would stay in Canada as long as she could not return to Kuwait. He always had an Ontario driver's license, OHIP and a Canadian passport but these he had during the years from 1977 on when no one suggested he was resident here. His investments in Canada were purely passive. He had nothing to do with running them.
[20] None of these considerations including the bank account and credit cards he had in Canada - and had to have because his family was living here - make him ordinarily resident here in 1992, 1993 and 1994.
[21] He did not in my view become a resident until 1995. His family's residing here from 1991 on was the result of the Gulf war. He was unquestionably a non-resident up to 1991 and his status did not change until 1995 when he left his residence and employment in Kuwait.
[22] There has been a great deal of jurisprudence in Canada on what constitutes "ordinarily resident" in Canada. A person who has a home in Canada where he or she has always lived but who spends, say, seven out of 12 months out of the country travelling or vacationing may still be "ordinarily resident" here. The appellant had not been ordinarily resident here since 1977 when he left for Baghdad.
[23] In Fisher v. The Queen, 95 DTC 840, I reviewed the authorities and it is useful to quote from these authorities again to show how far the appellant was from being "ordinarily resident" in Canada in 1992, 1993 and 1994 and how different the appellant's situation was from that of Mr. Fisher. He was required to keep his family here because his wife could not return to Kuwait. His visits were brief. He owned no home here. His total economic focus was in Kuwait, where he had a residence.
[24] At pages 843 to 845 I set out some of the leading cases.
The leading case on the meaning of "ordinarily resident" is Thomson v. Minister of National Revenue, 2 DTC 812 (SCC). The different reasons for judgment in the case illustrate the difficulty of assigning a precise meaning to this rather fluid and elusive term. Estey, J. said at p. 813:
A reference to the dictionary and judicial comments upon the meaning of these terms indicates that one is "ordinarily resident" in the place where in the settled routine of his life he regularly, normally or customarily lives. One "sojourns" at a place where he unusually, casually or intermittently visit or stays. In the former the element of permanence; in the latter that of the temporary predominates. The difference cannot be stated in precise and definite terms, but each case must be determined after all of the relevant factors are taken into consideration, but the foregoing indicates in a general way the essential difference. It is not the length of the visit or stay that determines the question. Even in this statute under section 9(b) the time of 183 days does not determine whether the party sojourns or not but merely determines whether the tax shall be payable or not by one who sojourns.
The words of Viscount Summer in Inland Revenue Commissioners v. Lysaght (1928), A.C. 234, at p. 243, are indicative:
I think the converse to "ordinarily" is "extraordinarily" and that part of the regular order of a man's life, adopted voluntarily and for settled purposes, is not "extraordinarily".
Lord Buckmaster, with whom Lord Atkinson concurred, in the same case, at 248:
... if residence be once established ordinarily resident means in my opinion no more than that the residence is not casual and uncertain but that the person held to reside does so in the ordinary course of his life.
The appellant selected the location, built and furnished the residence for the purpose indicated, and has maintained it as one in his station of life is in a position to do. In successive years his residence there was in the regular routine of his life acting entirely upon his own choice, and when one takes into consideration these facts, particularly the purpose and object of his establishing that residence, the conclusion appear to be unavoidable that within the meaning of this statute he is one who is ordinarily resident at East Riverside, New Brunswick, and is therefore liable for income tax under section 9(a).
It is well established that a person may have more than one residence, and therefore the fact of his residence in Pinehurst or Belleair does not assist or in any way affect the determination of this issue.
At p. 815-816 Rand, J. stated:
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.
The expression "ordinarily resident" carries a restricted signification, and although the first impression seems to be that of preponderance in time, the decisions on the English Act reject that view. It is held to mean residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence. The general mode of life is, therefore, relevant to a question of its application.
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 ordered or customary living is related. Ordinary residence can best be appreciated by considering its anthesis, occasional or casual or deviatory residence. The latter would seem clearly to be not only temporary in time and exceptional in circumstances, but also accompanied by a sense of transitoriness and of return.
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".
Kerwin, J. at p. 817-819 said:
There is no definition in the Act of "resident" or "ordinarily resident" but they should receive the meaning ascribed to them by common usage. When one is considering a Revenue Act, it is true to state, I think, as it is put in the Standard Dictionary that the words "reside" and "residence" are somewhat stately and not to be used indiscriminately for "live", "house" or "home". The Shorter Oxford English Dictionary gives the meaning of "reside" as being "To dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place". By the same authority "ordinarily" means: "1. In conformity with rule; as a matter of regular occurrence. 2. In most cases, usually, commonly. 3. To the usual extent. 4. As is normal or usual." On the other hand the meaning of the word "sojourn" is given as "to make a temporary stay in a place; to remain or reside for a time."
...
The appellant seeks to make himself a sojourner as he carefully remained in Canada for a period or periods amounting to less than 183 days during each year. This attempt fails. The family ties of his wife, if not to himself, the erection of a substantial house, the retention of the servants, together with all the surrounding circumstances, make it clear to me that his occupancy of the house and his activities in Canada comprised more than a mere temporary stay therein.
Kellock, J. said at p. 819:
"Ordinarily" is defined as "in conformity with rule or established custom or practice," "as a matter of regular practice or occurrence," "in the ordinary or usual course of events," "usually," "commonly," "as is normal or usual."
As Cartwright, J. said in Beament v. M.N.R., 52 DTC 1183, each case turns on its own facts. The principles set out in a number of other cases, in addition to Thomson, are, however, instructive. In The Queen v. Reeder, 75 DTC 5160, Mahoney, J. said at p. 5163:
While the Defendant here is far removed from the jet set, including any possible imputation of a preconceived effort to avoid taxation, the factors which have been found in those cases to be material in determining the pure question of fact of fiscal residence are as valid in his case as in theirs. While the list does not purport to be exhaustive, material factors include:
a. past and present habits of life;
b. regularity and length of visits in the jurisdiction asserting residence;
c. ties within that jurisdiction;
d. ties elsewhere;
e. permanence or otherwise of purposes of stay abroad.
The matter of ties within the jurisdiction asserting residence and elsewhere runs the gamut of an individual's connections and commitments: property and investment, employment, family, business, cultural and social are examples, again not purporting to be exhaustive. Not all factors will necessarily be material to every case. They must be considered in the light of the basic premises that everyone must have a fiscal residence somewhere and that it is quite possible for an individual to be simultaneously resident in more than one place for tax purposes.
It is, I believe, apparent from the decision of Schujahn v. M.N.R., 62 DTC 1225, and the Thomson case that one should treat with some caution the decisions under the United Kingdom taxing statutes.
While ultimately the tests that have been developed by the courts follow a common pattern, it would seem that individual residency cases fall into three broad categories:
(a) cases where a person who has theretofore been ordinarily resident in Canada leaves, takes up residence elsewhere and alleges that he or she has so severed the relationship with Canada that he or she is no longer resident here;
(b) cases where a person, ordinarily resident in another country, acquires a residence and other ties in Canada. There the question is whether that person has become "ordinarily resident" in Canada;
(c) cases where a Canadian resident leaves Canada and severs his or her connection with this country so that he or she is not a Canadian resident, and then reacquires ties here. The question there is whether that person has resumed residence here.
The tests may ultimately be the same, but the type of evidence necessary to establish the relinquishment of Canadian residency would normally be somewhat different from that necessary to establish that the taxpayer has or has not acquired or resumed it.
[25] Numerous other authorities were referred to. No useful purpose would be served by reviewing them or comparing them to this case. The appellant clearly severed his residential ties with Canada in 1977 and did not reacquire them until he moved back here in 1995. Nothing that he did, or had to do in 1992, 1993 and 1994 was sufficient to justify the conclusion that he had acquired the status of being ordinarily resident in Canada in those years.
[26] The appeals are allowed with costs and the assessments of tax, interest and penalties for 1992, 1993 and 1994 are vacated.
Signed at Ottawa, Canada, this 7th day of September 2001.
"D.G.H. Bowman"
A.C.J.
COURT FILE NO.: 1999-2647(IT)G
STYLE OF CAUSE: Between Emain Kadrie and
Her Majesty The Queen
PLACE OF HEARING: London, Ontario
DATE OF HEARING: July 26, 2001
REASONS FOR JUDGMENT BY: The Honourable D.G.H. Bowman
Associate Chief Judge
DATE OF JUDGMENT: September 7, 2001
APPEARANCES:
Counsel for the Appellant: Keith M. Trussler, Esq.
Counsel for the Respondent: Peter M. Kremer, Q.C.
COUNSEL OF RECORD:
For the Appellant:
Name: Keith M. Trussler, Esq.
Firm: Giffen & Partners
London, Ontario
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-2647(IT)G
BETWEEN:
EMAIN KADRIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on July 26, 2001, at London, Ontario, by
The Honourable D.G.H. Bowman
Associate Chief Judge
Appearances
Counsel for the Appellant: Keith M. Trussler, Esq.
Counsel for the Respondent: Peter M. Kremer, Q.C.
JUDGMENT
It is ordered that the appeals from assessments made under the Income Tax Act for the 1992, 1993 and 1994 taxation years be allowed with costs and the assessments of tax, interest and penalties be vacated.
Signed at Ottawa, Canada, this 7th day of September 2001.
|
"D.G.H. Bowman" |
A.C.J.