James Nightingale v. HMTQ 2010 D.T.C. 1043

During 2004 and 2005, James Nightingale worked for the Vietnam Veterans of America Foundation (“VVAF”) in Iraq as a Technical Advisor for the foundation’s Information Management and Mine Action Program (“IMMAP”). IMMAP was funded, in part, by the United Nations (the “UN”). Although his work with the VVAF involved projects with the UN and coordination with UN personnel, Mr. Nightingale was paid directly by the VVAF.

Both before and after working with the VVAF, Mr. Nightingale was employed by the UN. Mr. Nightingale, a resident and citizen of Canada, deducted the amounts he received from the VVAF in computing his taxable income for 2004 and 2005, by relying on a provision of the Income Tax Act (Canada) (the “Act”) that effectively exempts employment income received from the UN or a specialized agency of the UN (the “UN Income Deduction”).

Mr. Nightingale’s 2004 and 2005 income tax returns were reassessed and his claims for the UN Income Deduction were denied because the VVAF is not considered a specialized agency of the UN for the purposes of the Act. Mr. Nightingale appealed the reassessments to the Tax Court of Canada.

On appeal, Mr. Nightingale argued his employment with the VVAF in Iraq was indirectly with the UN and, therefore, he qualified for the UN Income Deduction. He also raised arguments, based on the Canadian Charter of Rights and Freedoms (the “Charter”), alleging discrimination under the Act with respect to citizens of Canada, as opposed to citizens of the United States, who are Canadian residents for tax purposes and Canadian civilians working on risky missions around the world, as compared to Canadian military or police personnel whose income received in the course of the same or similar deployments is deductible in computing taxable income. In dismissing his appeal, the Court rejected all of Mr. Nightingale’s arguments and found that he neither qualified for the UN Income Deduction nor suffered discrimination in a manner that invoked the Charter. A summary of the Court’s decision is provided below.

The UN Income Deduction Argument

This argument turned on whether Mr. Nightingale was employed by the UN, since the VVAF is not a specialized agency of the UN for Canadian tax purposes. Citing that there was no contractual relationship between Mr. Nightingale and the UN and that there was no evidence of any direct control of Mr. Nightingale’s activities by the UN, the Court confirmed that the UN Income Deduction was unavailable to Mr. Nightingale during the relevant period.

Charter Argument based on Citizenship

Mr. Nightingale contended discrimination under the Charter based on the application of certain Articles of the Canada-United States Income Tax Convention (1980) (the “Convention”) that address issues arising where the citizenship and residence of a taxpayer may be different. The Court could not reconcile the interpretations proffered by Mr. Nightingale with either the facts at hand or the language of the Convention itself and could not discern discrimination based on citizenship in either case. Charter Argument based on Occupation Although employment income for Canadian military and police personnel serving in high-risk locations is effectively exempt from income tax, the Act does not provide an exemption for employment income received by a Canadian civilian employed in comparable circumstances. While characterized by the Court as discrimination based on occupation status, this difference in treatment was not considered to fall within the scope of discrimination contemplated by the Charter. Thus, in this regard, the Charter was of no consequence to Mr. Nightingale.