Martin v. The King

Martin v. The King
Court (s) Database
Tax Court of Canada Judgments
Date
2024-12-09
Neutral citation
2024 TCC 153
File numbers
2020-1733(IT)G, 2021-521(IT)G
Judges and Taxing Officers
Jean Marc Gagnon
Subjects
Income Tax Act
Decision Content
Docket: 2020-1733(IT)G
BETWEEN:
RUSSELL MARTIN,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeals heard on common evidence with the appeals of Joshua Donaldson 2021-521(IT)G on July 12, 2023, at Montréal, Québec, and further written submissions received on July 13 and 19, 2023 from the Appellants and on July 14, 2023 from the Respondent
Before: The Honourable Justice Jean Marc Gagnon
Appearances:
Counsel for the Appellants:
Marie-France Dompierre
Marc Pietro Allard
Counsel for the Respondent:
Marie-Aimée Cantin
Julien Wohlhuter
JUDGMENT
Upon hearing the evidence and submissions of counsel for the Appellants and counsel for the Respondent;
In accordance with the attached Reasons for Judgment, the appeals from the reassessments made under the Income Tax Act for the Appellant’s 2015, 2016 and 2017 taxation years, by notices dated March 2, 2020, are allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant’s employment taxable income from Canadian sources are $2,151,327, $5,858,004 and $7,205,156, respectively.
There shall be one set of costs payable by the Respondent to the Appellants.
Signed at Ottawa, Ontario, this 9th day of December 2024.
“J.M. Gagnon”
Gagnon J.
Docket: 2021-521(IT)G
BETWEEN:
JOSHUA DONALDSON,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeals heard on common evidence with the appeals of Russell Martin 2020-1733(IT)G on July 12, 2023, at Montréal, Québec and further written submissions received on July 13 and 19, 2023 from the Appellants and on July 14, 2023 from the Respondent
Before: The Honourable Justice Jean Marc Gagnon
Appearances:
Counsel for the Appellants:
Marie-France Dompierre
Marc Pietro Allard
Counsel for the Respondent:
Marie-Aimée Cantin
Julien Wohlhuter
JUDGMENT
Upon hearing the evidence and submissions of counsel for the Appellants and counsel for the Respondent;
In accordance with the attached Reasons for Judgment, the appeals from the reassessments made under the Income Tax Act for the Appellant’s 2016 and 2017 taxation years, by notices dated May 8, 2020, are allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant’s employment taxable income from Canadian sources are $4,107,607 and $6,472,525, respectively.
There shall be one set of costs payable by the Respondent to the Appellants.
Signed at Ottawa, Ontario, this 9th day of December 2024.
“J.M. Gagnon”
Gagnon J.
Citation: 2024 TCC 153
Date: 20241209
Docket: 2020-1733(IT)G
BETWEEN:
RUSSELL MARTIN,
Appellant,
and
HIS MAJESTY THE KING,
Respondent;
Docket: 2021-521(IT)G
AND BETWEEN:
JOSHUA DONALDSON,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
REASONS FOR JUDGMENT
Gagnon J.
I. Introduction
[1] The crux of the matter in these appeals is whether, for Canadian income tax purposes, the retirement compensation arrangement contributions made by the Appellants’ Canadian employer shall be excluded from the taxable income of the Appellants before or after the duty day allocation agreed upon between Canada and the United States of America (United States) is applied to determine the portion of income allocated to each country.
[2] During the taxation years under appeal, Mr. Martin and Mr. Donaldson were professional sportspersons playing for the Rogers Blue Jays Baseball Partnership operating as the Toronto Blue Jays Baseball Club (Club). At all relevant times, the Appellants were residents of the United States and non-residents of Canada under the Act.
[3] The appeals were heard at the same time under common evidence from reassessments made by the Minister of National Revenue (Minister) under the Income Tax Act[1] by notices dated March 2, 2020 for Mr. Martin and May 8, 2020 for Mr. Donaldson (Reassessments). The taxation years under appeal are 2015, 2016 and 2017 for Mr. Martin and 2016 and 2017 for Mr. Donaldson (collectively Appeals).
[4] No one testified. The appeals are essentially a question of law. The amounts noted in these reasons are stated in Canadian dollars, unless otherwise indicated.
[5] The Court wishes to commend counsel for the Appellants and counsel for the Respondent for their well-organized and efficient way in which they approached these appeals, including their Agreed Statement of Facts and their written submissions.
II. Issue in Dispute
[6] The sole issue under appeal is whether, in computing their taxable income for the purposes of the Act, the Appellants are entitled to exclude during the relevant taxation years the RCA Contributions (defined below) from only their Canadian-sourced employment income.
III. Relevant Facts and Agreed Statement of Facts
[7] The facts in this matter are not in dispute. The parties filed an Agreed Statement of Facts (attached herewith as Schedule A).
[8] In reassessing Mr. Martin’s 2015, 2016, and 2017 taxation years, the Minister decreased his Canadian source employment income by $29,076 in 2015 and increased his Canadian-source employment income by $1,361,162 in 2016 and $2,353,786 in 2017. In reassessing Mr. Donaldson’s 2016 and 2017 taxation years, the Minister increased his Canadian-source employment income by $1,210,475 in 2016 and $1,415,961 in 2017. The Minister’s adjustments relate essentially to the contributions made by the Club to retirement compensation arrangements as defined for the purposes of the Act (RCA).
A. Russell Martin
[9] On November 20, 2014, Mr. Martin and the Club entered into a Major League Uniform Player’s Contract (Martin UPC). [2] The Martin UPC provided that the Club would employ Mr. Martin to play professional baseball for the Club for the 2015 to 2019 Major League Championship seasons. Pursuant to the Martin UPC, the Club agreed to pay Mr. Martin the following compensation and remuneration, plus playoff bonuses, for the performance of his duties in respect of the relevant taxation years:
a)USD 7,000,000 for 2015;
b)USD 15,000,000 for 2016; and
c)USD 20,000,000 for 2017.
[10] On March 27, 2014, the professional services firm Westcoast Actuaries delivered an actuarial valuation report as at January 1, 2015 (Martin Actuarial Report). [3] The purposes of the Martin Actuarial Report are to (i) determine the Club’s contributions to a retirement compensation arrangement through reduced contract salary of Mr. Martin and (ii) provide information and actuarial certification ensuring that the Club’s contributions made or to be made to the retirement compensation arrangement are reasonable and not excessive and as such deemed by the Minister as a salary deferral arrangement.
[11] The Martin Actuarial Report relied on the assumption that 40% of Mr. Martin’s compensation and remuneration was to be paid as income for Canadian income tax purposes. The Martin Actuarial Report also confirmed that the report’s conclusions are based on the compensation and remuneration payable to Mr. Martin for the employment duties performed in Canada only.
[12] On April 22, 2015, Mr. Martin and the Club agreed to amend the Martin UPC to reflect at that date the establishment of the RCA (Martin UPC Amendment). [4] Pursuant to the Martin UPC Amendment, the Club agreed to make contributions (RCA Contributions), less applicable withholdings, to the custodian of the trust established under the Act for the purposes of Mr. Martin’s RCA (Martin RCA). The Martin RCA and the related trust agreement were effective as of April 22, 2015. The RCA Contributions schedule (as amended subsequently) reflected the findings of the Martin Actuarial Report, subject to a subsequent amendment.
[13] As a result, the Club paid the following amounts in the relevant taxation years:
2015
2016
2017
To Mr. Martin
USD 5,837,710
USD 13,446,372
USD 17,548,403
To Mr. Martin as playoff bonus
USD 111,772
USD 125,000
N/A
To the Martin RCA
USD 1,162,290
USD 1,553,628
USD 2,451,597
Total Remuneration
USD 7,111,772
USD 15,125,000
USD 20,000,000
[14] The Club remitted half of the RCA Contributions amounts to the Receiver General for Canada on account of the payee’s tax for each year under Part XI.3 ITA.
B. Joshua Donaldson
[15] On March 19, 2016, Mr. Donaldson and the Club entered into a Major League Uniform Player’s Contract (Donaldson UPC). [5] The Donaldson UPC provided that the Club would employ Mr. Donaldson to play professional baseball for the Club for the 2016 and 2017 Major League Championship seasons. Pursuant to the Donaldson UPC, the Club agreed to pay Mr. Donaldson the following compensation and remuneration, plus playoff bonuses, for the performance of his duties in respect of the relevant taxation years:
a)USD 11,650,000 for 2016; and
b)USD 17,000,000 for 2017.
[16] On March 31, 2016, the professional services firm Westcoast Actuaries delivered an actuarial valuation report as at January 1, 2016 (Donaldson Actuarial Report). [6] The purposes of the Donaldson Actuarial Report are to (i) determine the Club’s contributions to a retirement compensation arrangement through reduced contract salary of Mr. Donaldson and (ii) provide information and actuarial certification ensuring that the Club’s contributions made or to be made to the retirement compensation arrangement are reasonable and not excessive and as such deemed by the Minister as a salary deferral arrangement.
[17] The Donaldson Actuarial Report relied on the assumption that 40% of Mr. Donaldson’s compensation and remuneration was to be paid as income for Canadian income tax purposes. The Donaldson Actuarial Report also confirmed that the report’s conclusions are based on the compensation and remuneration payable to Mr. Donaldson for the employment duties performed in Canada only.
[18] On June 20, 2016, Mr. Donaldson and the Club agreed to amend the Donaldson UPC to reflect at that date the establishment of the RCA (Donaldson UPC Amendment). [7] Pursuant to the Donaldson UPC Amendment, the Club agreed to make RCA Contributions, less applicable withholdings, to the custodian of the trust established under the Act for the purposes of Mr. Donaldson’s RCA (Donaldson RCA). The Donaldson RCA and the related trust agreement were effective as of June 20, 2016. The RCA Contributions schedule reflected the findings of the Donaldson Actuarial Report.
[19] As a result, the Club paid the following amounts in the relevant taxation years:
2016
2017
To Mr. Donaldson
USD 10,107,739
USD 15,184,232
To Mr. Donaldson as playoff bonus
USD 125,000
N/A
To the Donaldson RCA
USD 1,542,261
USD 1,815,768
Total Remuneration
USD 11,775,000
USD 17,000,000
[20] The Club remitted half of the RCA Contributions amounts to the Receiver General for Canada on account of the payee’s tax for each year under Part XI.3 ITA.
IV. Position of the Parties
[21] In summary, the Respondent takes the position that, upon reading the applicable provisions of the Act, the contributions from an employer into a RCA never entered into the calculations of a non‑resident employee’s income, regardless of where the income is earned. The Appellants disagree and take the position that the employer’s RCA contributions are originally included in the income allocation between Canada and the foreign country, included in the non-resident employee’s income and are subsequently excluded from the employment income earned in Canada in accordance with applicable ITA provisions. The outcome, depending on the position adopted, may have a significant impact on a non-resident employee’s taxable income earned in Canada.
[22] The Appellants submit that a proper textual, contextual, and purposive analysis of the applicable provisions of the Act leads to the logical result that where: a non-resident employee earns income for the performance of duties of employment in both Canada and a foreign jurisdiction and the employer of such an employee contributes to an RCA for the benefit of the employee, the exclusion of RCA contributions at subparagraph 6(1)(a)(ii) ITA only applies against the amount of Canadian-source income subject to taxation in Canada, i.e., income earned in Canada for the performance of employment duties in Canada. If it was not for the explicit exclusion, the non-resident employee’s taxable income in Canada would simply not be reduced by the employer’s contributions to an RCA.
[23] In practical terms, the Appellants’ position is that the RCA Contributions paid by the Club are to be excluded only from the portion of income that was earned in Canada after allocating gross compensation between jurisdictions. Since only 40% of the Appellants’ compensation and remuneration was earned and is taxable in Canada, the RCA Contributions should be deducted solely from that 40%. The Appellants argue that this is not only consistent with the text, context, and purpose of the Act but also consistent with the Canada-United States Convention[8] and other domestic and international tax principles. [9]
[24] The Respondent’s position is that the RCA Contributions do not enter into the computation of the Appellants’ income for Canadian tax purposes. In other words, the RCA Contributions are excluded before allocating income between jurisdictions. This is so for two reasons.
[25] First, the clear terms of the Martin and Donaldson UPC Amendments introducing the Martin and Donaldson RCA agreements, support that each RCA Contribution payable on a particular date reduces by the same amount the Appellants’ salary and wages payable to the Appellants on such date under their respective UPC. According to the Respondent, the RCA Contributions are not salary or wages received in exchange for services but instead are contributions designed to provide security for retirement benefits.
[26] Second, the Respondent argues that the RCA Contributions in a situation like in the present case do not enter the computation of income for Canadian tax purposes because the non-resident Appellants are not the recipients of any of the RCA Contributions during the taxation years under appeal. [10] The Respondent adds that by virtue of paragraph 2(3)(a) ITA, the Appellants’ taxable income earned in Canada is computed in accordance with Division D Part I ITA, which in subparagraph 115(1)(a)(i) ITA refers to section 3 ITA which then refers to sections 5 to 8 ITA (more specifically 5 and 6(1)(a) in the present case) in order to compute the employment income component of the Appellants’ taxable income earned in Canada for the purposes of paragraph 2(3)(a) (Respondent’s sequence). The Respondent’s sequence excludes all RCA contributions made in the taxation year from the total employment income. According to the Respondent, it is only once this sequence is completed that paragraph 4(1)(b) ITA requires income from this source to be apportioned between places. In the present case, only at that point of the Respondent’s sequence of the applicable provisions is the total employment income, as determined for ITA purposes, allocated among the two countries. This is clear from both the Amended Reply and the Reply filed by the Respondent in the Appellants’ appeals.
[27] The practical result of the Respondent’s sequence is that the RCA Contributions are never included in the income determined for purposes of the Act, and therefore, the only amount of income allocated between the countries is the amount paid (i.e., the taxable income earned in Canada) to the Appellants as salary and playoff bonuses during the relevant taxation years. In other words, the result of the Respondent’s sequence is such that the RCA Contributions are to be excluded from the computation of taxable income earned in Canada for ITA purposes before allocating income between the countries.
[28] Regarding the parties’ position, the Court notes the following observations:
a) The Respondent did not challenge the reasonability of (i) the RCA Contributions paid to the Appellants’ RCA, and (ii) the Appellants’ determination of the RCA Contributions based solely on the employment duties performed in Canada.
b) It is agreed that, for income tax purposes, (i) the Appellants performed 60% of their employment duties for the Club in the United States and 40% in Canada in each of the respective taxation year under appeal, and (ii) the same allocation applies to determine the compensation and remuneration between the two countries.
c) The parties did not (i) refer the Court to any subsection of section 115 ITA other than subsection 115(1), (ii) submit any substantive representation or evidence in connection with the applicable United States domestic income tax treatment of the Appellants, or (iii) dispute or raise any issue in regard to whether the RCA Contributions when made have a different value than their dollar face value.
d) The Court believes that the parties would agree that the total amount paid by the Club to the Appellants’ benefits post Martin/Donaldson UPC Amendment was the same total amount the Club and the Appellants agreed the Club would pay to the Appellants under the Martin/Donaldson UPC.
e) The Court finds that the Respondent’s position exposed previously is expressed with some differences between their written submissions and their positions submitted at the hearing:
i)In Subsection A of Part III of the submissions dealing with the Scheme of the Act for taxation of non-residents, the Respondent refers to subsections 2(3) and 115(1) ITA and immediately after introduces paragraph 4(1)(b) ITA.
ii)The Respondent confirms in the same Subsection A of Part III of his written submissions that paragraph 4(1)(b) requires a reasonable allocation of the income between the two countries since only the taxable employment income earned in Canada is determined under paragraph 115(1)(a).
iii)The Court notes that there is no clear indication made by the Respondent in Subsection A of Part III of his written submissions as to whether paragraph 4(1)(b) explicit reference implies that the allocation of the Appellants’ income among the two countries must be done prior to or is still made after the computations of the employment income. In Subsection D of Part III of the Respondent’s written submissions he appears to clarify his position by stating that the only amount of employment income that can be apportioned between Canada and the United States in applying section 4 for the purposes of paragraph 115(1)(a) is the amount of employment income computed pursuant to sections 5 and 6 ITA.
V. Analysis
A. Preamble
[29] The core issue in this appeal is a matter of statutory interpretation. Interpretation of the Act requires a nuanced approach, as referenced by the Supreme Court of Canada in Canada Trustco [11]:
It has been long established as a matter of statutory interpretation that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: see 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 50. The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole.
[30] The Supreme Court of Canada also stated the following in Placer Dome [12]:
[…] “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament” (p. 578): see 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 50. However, because of the degree of precision and detail characteristic of many tax provisions, a greater emphasis has often been placed on textual interpretation where taxation statutes are concerned: Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, 2005 SCC 54, at para. 11. Taxpayers are entitled to rely on the clear meaning of taxation provisions in structuring their affairs. Where the words of a statute are precise and unequivocal, those words will play a dominant role in the interpretive process.
[Emphasis added.]
B. Overview of taxation of non-resident individuals of Canada under Part I ITA
[31] A Canadian resident’s liability for tax on taxable income is found in section 2 of Division A Part I ITA. Subsection 2(1) levies tax on a resident’s taxable income for the year. The resident’s taxable income is determined under subsection 2(2).
[32] A non-resident’s liability for tax in Canada is found in subsection 2(3) of Division A Part I ITA. When such tax becomes payable, the tax is levied on the taxable income of the non-resident earned in Canada as determined in accordance with Division D Part I ITA.
[33] Section 2 ITA reads as follows:
PART I — Income Tax
DIVISION A — Liability for Tax
Tax payable by persons resident in Canada
2 (1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.
Taxable income
2 (2) The taxable income of a taxpayer for a taxation year is the taxpayer’s income for the year plus the additions and minus the deductions permitted by Division C.
Tax payable by non-resident persons
(3) Where a person who is not taxable under subsection 2(1) for a taxation year
(a) was employed in Canada,
(b) carried on a business in Canada, or
(c) disposed of a taxable Canadian property,
at any time in the year or a previous year, an income tax shall be paid, as required by this Act, on the person’s taxable income earned in Canada for the year determined in accordance with Division D.
[Emphasis added.]
[34] Subsection 2(3) ITA directs non-residents with Canadian-source income to Division D Part I ITA, and not to section 3 ITA, at least not directly.
[35] Division D, titled “Taxable Income Earned in Canada by Non-Residents”, begins with section 115 ITA “Non-resident’s taxable income in Canada”. Section 115 directs how a non-resident is to calculate her/his taxable income earned in Canada for the year (referred to in subsection 2(3) ITA). Subparagraph 115(1)(a)(i) relates to income sourced from employment and reads as follows:
DIVISION D
Taxable Income Earned in Canada by Non-Residents
Non-resident’s taxable income in Canada
115 (1) For the purposes of this Act, the taxable income earned in Canada for a taxation year of a person who at no time in the year is resident in Canada is the amount, if any, by which the amount that would be the non-resident person’s income for the year under section 3 if
(a) the non-resident person had no income other than
(i) incomes from the duties of offices and employments performed by the non-resident person in Canada [...]
[Emphasis added.]
[36] Section 115 ITA alters the application of section 3 ITA for non-residents. Subparagraph 115(1)(a)(i) directs that a non-resident’s “taxable income earned in Canada” is the amount that “would be” the individual’s income for the year under section 3 “if” the individual earned no other income except income from the duties of offices or employments performed in Canada. The Court agrees with the Appellants that subsection 115(1) creates a legal fiction whereby only income earned in relation to duties performed in Canada (Canadian-source employment income) is used to calculate a non-resident’s income under section 3. This is evidenced inter alia by Parliament’s reference to the words “would be” and “if” and is consistent with the source-by-source rule in section 4 ITA.
[37] Subparagraph 115(1)(a)(i) ITA directs that the amount that will be subject to section 3 ITA is “incomes from the duties of offices and employments performed […]” in Canada. Therefore, it is the total income from employment performed in Canada that will become the subject of the computation of income under section 3. At that point under subparagraph 115(1)(a)(i), it does not matter how the income will be treated under section 3 and the subsequent applicable provisions of the Act will include or exclude amounts from the “incomes from the duties of offices and employments performed […]” for computing the income subject to tax in Canada. What clearly matters from subparagraph 115(1)(a)(i) is that the income retained for the purposes of section 3 is the “incomes from the duties of offices and employments performed […]” in Canada.
[38] It is important to note the context in which a reference in paragraph 115(1)(a) ITA is made to incomes from the duties of offices and employments performed in Canada. First, the Act does not define income for such purpose. Second, the reference to income in subparagraph 115(1)(a)(i) does not refer to any other provision, part, division or subdivision of the Act that could define the inclusions, exclusions, or expand or restrict its meaning.
[39] The amounts that will be considered for that purpose need the quality of income. [13] In other words, not all amounts received or enjoyed are considered to be income. Author B. J. Arnold suggests that the only amounts that are beneficially received/enjoyed by a taxpayer are required to be included in income. Generally, such position excludes from income an amount received as agent. But, it could be income if the taxpayer beneficially owns the amount and has a legal obligation to pay the amount to a third party. The actual physical receipt is not necessary to satisfy the requirement of receipt for income tax purposes. Often control over the amount will generally dictate the inclusion.
[40] Doctrines of constructive receipt, indirect receipt and receipt in kind have some similarities. Although they apply to different situations, they may all direct the inclusion of an amount in income. It is unclear whether the doctrine of constructive receipt is applied in Canada. Authors are not all of the same view. However, indirect receipt could be of some interest in the present case. About the doctrines, and amounts held in trust, B. J. Arnold in Timing and Income Taxation: The Principles of Income Measurement for Tax Purposes [14]:
The doctrine of constructive receipt has often been said to apply to deferred compensation arrangements for employees. Generally, these deferred compensation arrangements are structured by establishing a trust for the benefit of the employees. […] If, however, an employee has a vested right in the amounts contributed to the trust on his behalf by his employer, it appears that he directly receives a benefit by virtue of his employment (that is, his interest in the trust), even though he has not received the amounts contributed to the trust by his employer. As a result, deferred compensation arrangements generally provide that the employee’s entitlement to the trust funds is contingent upon the satisfaction of one or more conditions, such as continuing employment, a noncompetition clause, and/or the availability of the employee for consulting services to the employer after retirement. Where the employee’s right to the trust fund vests at the time of the contribution to the trust by the employer, the employee may be considered to have received a benefit to the extent of the value of the right to receive the trust funds at some time in the future. It is important, however, to realize that it is a case of direct receipt and not constructive receipt.
[Emphasis added.]
[41] Although B. J. Arnold might disagree with the reference to the doctrine of constructive receipt instead of the doctrine of indirect receipt or even a direct receipt case, in Principles of Canadian Income Tax Law [15], Li, Magee and Wilkie explain:
In order to constitute a “receipt” of money for tax law purposes, is it necessary for the taxpayer to “actually touch or feel it, or have it in his bank account?” The Court answered in Jean-Paul Morin v. The Queen, (1975) [[1975 C.T.C. 106 (Fed TD) 75 D.T.C. 5061]:
We regret to say that this proposition seems to us absolutely inadmissible, because the word “receive” obviously means to get or to derive benefit from something, to enjoy its advantages without necessarily having it in one’s hands.
When money is paid by an employer to a third party for the benefit of the taxpayer, the payment constituted constructive receipt in the hands of the taxpayer [Markman v Minister of National Revenue, [1989] 1 C.T.C. 2381 (T.C.C.) 89 DTC 253]. For example, in Blenkarn v. Minister of National Revenue (1963) [63 D.T.C. 581 (T.A.B.) 32 Tax A.B.C. 321], where the money to pay the taxpayer’s salary in 1960 was available but he voluntarily chose not to be paid until 1961, he was considered to have actually received the money. The payment was held to be “received” as soon as he had an unconditional right to be paid, which was in 1960.
[Emphasis added.]
[42] When the above Canadian tax law principles are considered, section 3 ITA specifies how to compute an individual’s income for the year to ultimately determine the tax payable. The Court notes that section 3 falls under the heading “Basic Rules” and reads as follows:
DIVISION B — Computation of Income
Basic Rules
Income for taxation year
3 The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,
(b) determine the amount, if any, by which
(i) the total of
(A) all of the taxpayer’s taxable capital gains for the year from dispositions of property other than listed personal property, and
(B) the taxpayer’s taxable net gain for the year from dispositions of listed personal property,
exceeds
(ii) the amount, if any, by which the taxpayer’s allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer’s allowable business investment losses for the year,
(c) determine the amount, if any, by which the total determined under paragraph (a) plus the amount determined under paragraph (b) exceeds the total of the deductions permitted by subdivision e in computing the taxpayer’s income for the year (except to the extent that those deductions, if any, have been taken into account in determining the total referred to in paragraph (a)), and
(d) determine the amount, if any, by which the amount determined under paragraph (c) exceeds the total of all amounts each of which is the taxpayer’s loss for the year from an office, employment, business or property or the taxpayer’s allowable business investment loss for the year,
and for the purposes of this Part,
(e) where an amount is determined under paragraph (d) for the year in respect of the taxpayer, the taxpayer’s income for the year is the amount so determined, and
(f) in any other case, the taxpayer shall be deemed to have income for the year in an amount equal to zero.
[Emphasis added.]
[43] Section 3 ITA divides income into the following five categories, each of which is considered a source: office, employment, business, property and capital gains. The list is not exhaustive. Each source is taxed according to its own set of rules. The different sources of income and losses are aggregated under section 3. The Subdivisions of Division B Part I ITA, set out immediately after the two core provisions that are sections 3 and 4 ITA (Basic Rules), instruct taxpayers on how to calculate income from each source. [16]
[44] Section 4 ITA, the second Basic Rules, requires taxpayers to compute income or loss from various sources as if each source were the taxpayer’s only source of income. Paragraph 4(1)(a) reads as follows:
Income or loss from a source or from sources in a place
4 (1) For the purposes of this Act,
(a) a taxpayer’s income or loss for a taxation year from an office, employment, business, property or other source, or from sources in a particular place, is the taxpayer’s income or loss, as the case may be, computed in accordance with this Act on the assumption that the taxpayer had during the taxation year no income or loss except from that source or no income or loss except from those sources, as the case may be, and was allowed no deductions in computing the taxpayer’s income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that source or to those sources, as the case may be, and except such part of any other deductions as may reasonably be regarded as applicable thereto; […]
[Emphasis added.]
[45] Paragraph 4(1)(b) ITA adds that the source-by-source rule applies for the purposes of the Act in the same manner where a taxpayer performs duties of office or employment partly in one place and partly in another place. For example, an individual who earns employment income from one employer for duties performed in two different countries or two different locations in Canada. Paragraph 4(1)(b) provides that where income from a single source is earned in two different places, each place is considered a separate source of income. Paragraph 4(1)(b) reads as follows:
[…] (b) where the business carried on by a taxpayer or the duties of the office or employment performed by a taxpayer was carried on or were performed, as the case may be, partly in one place and partly in another place, the taxpayer’s income or loss for the taxation year from the business carried on, or the duties performed, by the taxpayer in a particular place is the taxpayer’s income or loss, as the case may be, computed in accordance with this Act on the assumption that the taxpayer had during the taxation year no income or loss except from the part of the business that was carried on in that particular place or no income or loss except from the part of those duties that were performed in that particular place, as the case may be, and was allowed no deductions in computing the taxpayer’s income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that part of the business or to those duties, as the case may be, and except such part of any other deductions as may reasonably be regarded as applicable thereto.
[Emphasis added.]
[46] The Court notes in subsection 4(3) ITA the specific reference to section 115 ITA:
4(3) In applying subsection 4(1) for the purposes of subsections 104(22) and 104(22.1) and sections 115 and 126,
(a) subject to paragraph (b), all deductions permitted in computing a taxpayer’s income for a taxation year for the purposes of this Part, except any deduction permitted by any of paragraphs paragraph 60(b) to (o), (p), (r) and (v) to (z), apply either wholly or in part to a particular source or to sources in a particular place; and
(b) any deduction permitted by subsection 104(6) or 104(12) shall not apply either wholly or in part to a source in a country other than Canada.
[Emphasis added.]
[47] In light of the foregoing provisions, subsection 2(2) ITA combined with the Basic Rules direct a resident to calculate her/his “income for the year” from each source under Division B Part I ITA and aggregate them. Once the resident has calculated her/his income for the year under sections 3 and 4, the taxpayer then computes her/his taxable income by applying the additions and the deductions referred to in Division C Part I ITA to her/his income for the year. As to the two Basic Rules under Part I ITA, they apply with close interaction and connection, and guide the taxpayer to calculate income by clustering sources of income together on a source-by-source basis. The two Basic Rules are central to the determination of income for the purposes of the Act.
[48] Subsection 2(3) ITA provides that a non-resident who earns income from a Canadian-source is to calculate her/his taxable income differently than a resident of Canada. While residents are liable for tax on their “taxable income”, non‑residents are liable for tax on their “taxable income earned in Canada” determined in accordance with Division D Part I ITA.
[49] When subsection 2(3) ITA is contextualized with subsections 2(1) and 2(2), it is apparent that Parliament intended to identify the subset of non-residents that have a connection to Canada giving rise to Canadian tax liability. Subsection 2(3) carves out non-residents who have Canadian-source income and levies tax on their taxable income earned in Canada. If subsection 2(3) did not exist, non-residents who earn income from a Canadian source would escape taxation in Canada. To be clear, only non-residents who were employed in Canada, carried on business in Canada, or disposed of a Canadian property at any time in the taxation year or previous year are considered to have income from a Canadian source such that subsection 2(3) applies.
[50] No specific reference is made to section 4 ITA in subsection 115(1) ITA. However, subsection 4(1) applies for the purposes of the Act and paragraph 4(3) refers specifically to section 115. The Court does not believe that ambiguity exists as section 4 is applicable, to the same extent, to non-residents and residents of Canada. Notwithstanding the foregoing, it remains clear from the wording of subsection 115(1) that the only income that is relevant in the case of a non-resident is the income resulting from the duties of offices and employments performed by the non-resident in Canada. In cases like these appeals, paragraphs 4(1)(b) and 115(1)(a) have essentially the same intended effect, by considering only the income from the performance of services in Canada in determining the non-resident tax payable in Canada.
[51] In addition, nothing in subsection 2(3) ITA, section 115 ITA or section 4 ITA directs that section 4 applies any differently to non-residents. Section 4 stipulates what portion of income is Canadian-source income if an employment contract is performed in two different locations. More specifically, paragraph 4(1)(b) directs a taxpayer to treat income earned from employment duties performed in two places to be income earned from separate sources based upon the time working physically in each place. There is no distinction between non-residents and residents. In Nonis [17], this Court made clear the function of paragraph 4(1)(b) with respect to non-residents earning Canadian-source employment income:
Ultimately, paragraph 4(1)(b) of the Act provides a formula for determining a non-resident’s income tax liability. According to paragraph 4(1)(b) of the Act, if a taxpayer works partly in Canada and partly in another country in the same taxation year, the taxpayer’s taxable Canadian income for the year is the amount earned while working physically in Canada. […]
[52] The main difference between non-residents and residents comes from the altered application of section 3 ITA, such that non-residents are to ignore the foreign-source income. This means that the computational rules found in Division B Part I ITA being the Basic Rules are to be applied only to Canadian-source income. This is consistent with the Act; while subsection 2(3) ITA levies tax on non-residents with a taxable income earned in Canada, section 115 ITA specifies t