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FEDERAL INCOME TAX - Non-residents - Tax treaties

Wednesday, January 15, 2020 @ 9:09 AM  


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Appeal by Wolf from a Tax Court decision dismissing his appeal from a 2012 assessment in relation to income he earned in Canada. The appellant, a resident of the U.S., was assessed taxes payable under the Income Tax Act on the basis that he had a permanent establishment in Canada for the purposes of the Convention Between Canada and the U.S. with Respect to Taxes on Income and on Capital (1980). The appellant worked as a consultant for Bombardier in Montreal. During 2012, he earned $26,244 of income for his consulting work with Bombardier Inc. He had also entered into an arrangement with Davis Aircraft in the U.S. Wolfbend was formed under the laws of New York for the purpose of collecting and allocating profits generated through the Manufacturing & License Agreement between Davis Aircraft and Wolfbend. For U.S. tax purposes, Wolfbend was treated as a partnership. The Tax Court judge found that the profits generated by the Manufacturing & License Agreement were clearly those of the appellant and Davis Aircraft Inc. He determined that the enterprise that generated the profit in the U.S. was the appellant’s enterprise and not Wolfbend’s enterprise. Having found that it was the appellant’s enterprise in the U.S. that generated the revenues from the Manufacturing & License Agreement, the Tax Court judge found that this was part of the same enterprise under which the appellant was providing engineering services to Bombardier. The Tax Court judge found the appellant did not establish that 50 per cent or less of his gross active business income from his enterprise was earned in Canada during the period that he was present in Canada.

HELD: Appeal dismissed. The payments the appellant received from Wolfbend were revenues of the appellant’s enterprise. Clearly, he made a business deal with Davis Aircraft, not with Wolfbend. The Tax Court judge did not err in finding that the enterprise that generated the profit in the U.S. was the appellant’s enterprise and not Wolfbend’s enterprise. The Tax Court judge, in this case, did not pierce the corporate veil and find that the appellant should be considered to be carrying on the business that Wolfbend was carrying on but examined the contracts and other evidence to determine who was carrying on the business in the U.S. The Tax Court judge made no palpable and overriding error in relation to the determination of the appellant’s gross active business revenues from his enterprise during the relevant period. The appellant did not adduce any evidence with respect to the actual timing of the earning of the revenue in the U.S. although the timing of the earning of the revenue was relevant and was a matter that he ought to have addressed through his evidence. The appellant did not point to anything in the record that would support any finding of when the revenue was earned in the U.S.

Wolf v. Canada, [2019] F.C.J. No. 1303, Federal Court of Appeal, W.W. Webb, R. Boivin and D.J. Rennie JJ.A., November 15, 2019. Digest No. TLD-January132020006