Earlier this year, in Black v. HMQ (2014 TCC 12), Lord Conrad Black unsuccessfully argued in the Tax Court of Canada that, due to his U.K. residency status, he should not be subject to Canadian tax on certain income and taxable benefits (see our previous post here).
In the case, the Tax Court held that a liberal and purposive approach must be adopted when interpreting tax treaties (i.e., Canada-United Kingdom Income Tax Convention). Applying this approach, the Tax Court held that Lord Black could be deemed a U.K. resident for the purposes of the Canada-UK Treaty and also a Canadian resident for the purposes of the Income Tax Act (Canada) (the “Act“).
Further, the Tax Court held that Article 27(2) of the Canada-UK Treaty applied to enable the CRA to assess a Canadian resident’s non-Canadian office and employment income. Consequently, the Tax Court held that Lord Black was liable for tax on the income and benefits in question.
Both parties had agreed that subsection 250(5) of the Act, the tie-breaker rule which deals with the deemed non-residency of a Canadian where the individual is deemed to be a resident in another country by virtue of a tax treaty, did not apply. At the time the subsection came into force in 1999, the provision was not applicable to a Canadian resident individual who was (i) a resident of two countries and (ii) deemed resident of one of those countries under a tax treaty. Had subsection 250(5) applied, Lord Black would not be a resident of Canada for the purposes of the Act.
On appeal, the Federal Court of Appeal considered the following issues:
- whether the Tax Court correctly determined that Lord Black could be deemed both a U.K. resident under the Canada-UK Treaty and a Canadian resident for the purposes of the Act; and
- whether the Tax Court correctly determined that Article 27(2) of the Canada-UK Treaty applied.
The Court of Appeal dismissed the taxpayer’s appeal and affirmed the Tax Court’s decision on both issues (2014 FCA 275).