T-1303-77
Holbrook R. Davis (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Décary J.—Montreal, March 21;
Ottawa, July 17, 1978.
Income tax — Capital gains — Deemed disposition of
capital properties on plaintiffs ceasing to be resident on
December 30, 1972 — Whether or not amendment to s. 48(1)
of Income Tax Act retroactive to 1972 taxation year applies —
Whether or not The Canada-United States of America Tax
Convention Act applicable — Income Tax Act, R.S.C. 1952, c.
148, s. 48(1), and amendment S.C. 1973-74, c. 14, s. 9 — The
Canada-United States of America Tax Convention Act, 1943,
S.C. 1943-44, c. 21, Article VIII.
Plaintiff appeals the Tax Review Board's dismissal of his
appeal. On December 30, 1972, plaintiff, who had been
employed in Canada throughout the taxation year, became a
resident of the United States and ceased to be resident in
Canada for the rest of the year. He neither carried on business
nor maintained or acquired a permanent residence in Canada
after that time. Immediately before ceasing to be a resident,
plaintiff was the owner of certain capital properties--other
than taxable Canadian properties—with a market value higher
than their adjusted cost base. The issue is whether or not
plaintiff is liable for capital gains tax on the deemed disposition
of these capital assets; plaintiff questions whether an amend
ment to section 48(1) retroactive to 1972 applies, and contends
that The Canada-United States of America Tax Convention
Act is applicable.
Held, the action is dismissed. The provisions that apply are
those of section 48(1) as amended because that amendment
was made retroactive to 1972, the year during which plaintiff
left Canada. The deemed to be disposition of property is said to
take place "immediately before the particular time" before
ceasing to be resident in Canada. To cease to be resident does
not entail the individual's becoming resident of another country
first. The deemed to be disposition is not a sale or exchange
within the meaning of Article VIII of The Canada-United
States of America Tax Convention Act. A deemed to be
disposition is a fiction created by the statute for a specific
purpose—herein, the departure tax. The reference to sale and
exchange in Article VIII of the Convention means sale and
exchange as they take place in the course of events and not as a
fiction created by statute. Furthermore, it cannot be said that a
gain is derived from a deemed to be disposition.
INCOME tax appeal.
COUNSEL:
Samuel Minzberg for plaintiff.
Alban Garon, Q.C. and Guy Dupont for
defendant.
SOLICITORS:
Phillips & Vineberg, Montreal, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
DECARY J.: This case in this Court ensues the
dismissal by the Tax Review Board of the appeal
of taxpayer.
The relevant sections of the Income Tax Act are
section 48(1), chapter 148 as it read in 1972 and
section 48(1) as amended by S.C. 1973-74, c. 14,
section 9 and made retroactive to 1972 section
9(2). Section 48, before its amendment, read in
part as follows:
48. (1) For the purposes of this subdivision, where at any
time in a taxation year a taxpayer ceases to be resident in
Canada, he shall be deemed to have disposed of each property
After its amendment, applicable to 1972, section
48 read in part as follows:
9. ...
"48. (1) For the purposes of this subdivision, where a
taxpayer has ceased, at any particular time in a taxation year
and after 1971, to be resident in Canada, he shall be deemed
to have disposed, immediately before the particular time, of
each property ...."
(2) This section is applicable to the 1972 and subsequent
taxation years.
The parties have filed an amended agreed state
ment of facts which are all contained in para
graphs 1 to 8 inclusive therein and which reads:
1. Prior to 1956, Plaintiff was resident in the United States of
America.
2. From 1956 to a point in time during the day of December
30, 1972, Plaintiff was resident in Canada.
3. At a point in time during the day of December 30, 1972,
Plaintiff became resident in the United States of America and
ceased to be resident in Canada for the rest of the year.
4. Plaintiff was not carrying on business in Canada at any time
after he ceased to be a resident in Canada.
5. Plaintiff was employed in Canada throughout the whole
1972 taxation year.
6. Immediately before the Plaintiff ceased to be resident in
Canada on December 30, 1972, and became resident in the
United States of America, Plaintiff was the owner of certain
capital properties the fair market value whereof was higher
than their adjusted cost base. These capital properties were
properties other than taxable Canadian properties within the
meaning of the Income Tax Act. (The enumeration of these
capital properties is found in schedule 1 here attached).
7. Plaintiff, after he became resident in the United States of
America in 1972, did not maintain or acquire a permanent
establishment in Canada.
8. If this Honourable Court comes to the conclusion that there
was a deemed disposition of capital properties other than
Canadian taxable properties within the meaning of the Income
Tax Act (as detailed in schedule I here attached) while Plain
tiff was a resident in Canada, then the taxable capital gains
amount to $72,085.45 pursuant to subsection 48(1) and should
be included in Plaintiff's income for the 1972 taxation year.
It is my opinion that the provisions that should
be applicable are those of section 48 (1) as amend
ed because that amendment was made retroactive
to 1972, which year is the one during which plain
tiff left Canada.
In section 48 as amended, reference is made to
having ceased "at any particular time" to be resi
dent in Canada and the deemed to be disposition
of property is said to take place "immediately
before the particular time" which, of course,
means the particular time before ceasing to be
resident in Canada.
I fail to see how counsel for the plaintiff can say
that his client had to be an American resident
before ceasing to be a Canadian resident. You
leave a room before entering another one, you do
not enter one before leaving the other. Indeed, if
the plaintiff for instance had gone by aircraft to
Japan, on a Japanese airliner, I believe that he
would have ceased to be a Canadian resident as
soon as the flight was no longer over Canadian
land or waters, though plaintiff might not already
have been a Japanese resident. The same reasoning
could be inferred for travel by ship, once the vessel
has left Canadian waters.
The learned counsel for the plaintiff has quoted
these remarks of Rand J., in Thomson v. M.N.R.,'
at page 224:
For the purposes of income tax legislation, it must be
assumed that every person has at all times a residence.
' [1946] S.C.R. 209.
These remarks immediately follow the above
quote, and are part of the same paragraph at page
225:
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.
In my view, upon leaving Canada, the plaintiff
started his "ordered and customary living" in the
United States of America.
Counsel for plaintiff referred the Court to the
provisions of Article VIII of The Canada-United
States of America Tax Convention Act, 1943, S.C.
1943-44, c. 21, which reads as follows:
Gains derived in one of the contracting States from the sale
or exchange of capital assets by a resident or a corporation or
other entity of the other contracting State shall be exempt from
taxation in the former State, provided such resident or corpora
tion or other entity has no permanent establishment in the
former State.
I cannot concur with the view expressed by
learned counsel for plaintiff to the effect that the
deemed to be disposition is a sale or exchange. A
deemed to be disposition is a fiction created by the
statute for a specific purpose and herein only for
what is known as the departure tax, whereas in my
opinion, the reference to sale and exchange in
Article VIII of the Convention means sale and
exchange as they take place in the course of events
and not as a fiction created by statute. Further
more, it cannot be said that a gain is derived from
a deemed to be disposition.
It was contended that the retroactivity of section
48 as amended was affecting the vested rights of
the plaintiff and these remarks of Dickson J. in
Gustayson Drilling (1964) Limited v. M.N.R. 2 at
page 282 were quoted:
The presumption that vested rights are not affected unless the
intention of the legislature is clear applies whether the legisla
tion is retrospective or prospective in operation.
I do not believe there are vested rights involved
in the present instance. The result would be the
same under either section 48 or section 48 as
2 [1977] 1 S.C.R. 271.
amended because the plaintiff, for the purpose of
each section, has ceased to be resident in Canada
before becoming resident in the United States of
America.
The action is dismissed with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.