The Queen v. Sherwood, 78 DTC 6470, [1978] CTC 713 (FCTD)

Walsh, J:—This is an appeal respecting defendant’s income tax assessments amounting to $4,047.73 for the taxation year 1953, $735,348.47 for the taxation year 1954, $111,901.53 for the taxation year 1956, $332,219.55 for the taxation year 1957, and gift tax in the sum of $375,161.32 for the taxation year 1957, as well as lesser assessments of $1,280.75 for the year 1958 and $180.83 for the year 1959. After notices of objection defendant appealed in due course to the Tax Appeal Board and some three years later the appeal was heard by the Tax Review Board with the parties agreeing that the Board should rule on the question of defendant’s residence during the years 1954 to 1959. Judgment was rendered in favour of defendant on June 12, 1972. In the original statement of claim issues were also raised with respect to the amounts of the various assessments and the manner in which they were calculated including the assessment for gift tax.

The Minister in making the assessment did so on the basis that during the years 1953 to 1959 defendant was a Canadian resident, being a stock promoter and dealer in securities. Defendant contends that he ceased to be a Canadian resident in July 1954 and in addition to contesting his liability to taxation in Canada disputed the quantum of the various assessments.

At the hearing defendant’s counsel stated that no proof would be made relating to the 1953 taxation year so that assessment stands. It was also pointed out that for the 1955 taxation year there is no issue before the Court, defendant having suffered a loss in that year to be carried forward or back. The issues before the Court were considerably simplified: and the length of hearing shortened by admissions made by the defendant that the only matter which would now be disputed was the issue of defendant’s residence during the relevant period and that no evidence would be made on the other issues, including the calculations of trading profits.

The question of determination of residence for taxation purposes is never an easy one, and as might be expected there are indicia in the present case pointing both ways. The question of residence must not be confused with domicile. While a person may at all times have only one domicile, his domicile of origin being capable of being replaced at a given time by a new domicile of choice which, if subsequently abandoned results in his reverting to his domicile of origin unless and until a new domicile of choice is established by duration of residence and evidence of intent to establish a new domicile, residence, and particularly residence for taxation purposes is an entirely different matter. A person may have and frequently does have several different residences at the same time. Frequently well to do people may have homes in several different countries, occupying each of them for varying periods of time each year. Depending on the duration of their stay they may by so doing make themselves liable to taxation for income tax in more than one country in the same year, or perhaps be fortunate enough to avoid payment of income tax altogether, as would be the case for defendant if the present assessments were not sustained. This is not to suggest that defendant does not have a perfect right to minimize or avoid taxation, if he can do so, by the proper legal application of the taxing statutes of the countries concerned. Frequently in cases where double taxation might result this is avoided or minimized by tax conventions between the taxing countries both of which might otherwise claim taxation on the income or a portion of the income of the person concerned. Such a convention exists between Canada and the United States, but that is not the issue in the present litigation. No precise evidence was introduced as to the number of days in each of the years in question ,which defendant spent in. Canada, the United States, or elsewhere, although it is likely that he spent more time in the United States than in Canada during most of the years in question, but the issue is not whether he spent 183 days in Canada in any of the said years, but rather whether he was ordinarily resident in Canada during this period.

Subsection 2(1) of the Income Tax Act in effect at the time RSC 1952, c 148 as amended read as follows:

2. (1) An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year.

Section 3 read:

3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year from all sources inside or outside Canada and, without: restricting the generality of the foregoing, includes income for the year from all

(a) businesses,

(b) property, and

(c) offices and employments.

Subsection 139(4) read:

In this Act, a reference to a person resident in Canada includes a person who was at the relevant time ordinarily resident in Canada.

and subsection 111(1) dealing with gift tax read:

A tax shall be paid as hereinafter required upon the aggregate taxable value of gifts made in a taxation year by an individual resident in Canada.

Unfortunately, as has frequently been pointed out, there is no definition of the term “resident” or “ordinarily resident” in the Act. In the Supreme Court case of G E Beament v MNR [1952] CTC 327; 52 DTC 1183 Cartwright, J as he then was,-stated at 1185-6:

The Income War Tax Act does not contain a definition of the words “resident” or “ordinarily resident” and it is common ground that they should be given the everyday meaning ascribed to them by common usage.

The question whether, as used in section 7(a), the words “ordinarily resident” are more or less comprehensive than, or synonymous with, the word “resident” was argued before us but it does not appear to me to be necessary to pursue this inquiry in this case. It has already received attention in P W Thompson v MNR.

In the Thompson case [1946] CTC 51; 2 DTC 812 the various learned judges of the Supreme Court in separate judgments discussed the question at some length making extensive reference to the British jurisprudence. Estey, J stated at 813:

A reference to the dictionary and judicial comments upon the meaning of these terms indicates that one is “ordinarily resident” in the place where in the settled routine of his life he regularly, normally or customarily lives. One “sojourns” at a place where he unusually, casually or intermittently visits or stays. In the former the element of permanence; in the latter that of the temporary predominates. The difference cannot be stated in precise and definite terms, but each case must be determined after all of the relevant factors are taken into consideration, but the foregoing indicates in a general way the essential difference. It is not the length of the visit or stay that determines the question.

The British jurisprudence must be interpreted with caution since the matter of residence is one decided by the Tax Commissioners as an administrative matter and whether or not the Appeal Courts would have come to the same view they are constrained not to change the interpretation provided there was any evidence to justify the finding of the Commissioners. Rand, J explains this in the Thompson case at 815 where he states:

As interpreted the English Act uses the word “residing” or the expression “ordinarily resident” in the sense of the general acceptation without special or technical meaning; and the Tax Commissioners find first the actual circumstances of a case and then as fact whether they are within that acceptation. An appeal is allowed on a point of law, and where the person charged IS appealing, the question invariably is whether there was any evidence to justify the finding. This strictly limited jurisdiction prevents us from assuming that a court sitting in appeal generally would have come to the same view of liability; and there are frequent intimations by individual judges that their own finding might have been different. But notwithstanding this limited function, these decisions reveal many aspects of residence under modern conditions and the extreme scope of interpretation to which the courts have felt themselves driven by the generality of the terms used and from the wide administrative jurisdiction conferred upon the Commissioners.

Later on 815 and 816 Rand, J states:

The graduation of degrees of time, object, intention, continuity and other relevant circumstances, shows, I think, that in common parlance “residing” is not a term of invariable elements, all of which must be satisfied in each instance. It is quite impossible to give it a precise and inclusive definition. It is highly flexible, and its many shades of meaning vary not only in the contexts of different matters, but also in different aspects of the same matter. In one case it is satisfied by certain elements, in another by others, some common, some new.

The expression “ordinarily resident” carries a restricted signification, and although the first impression seems to be that of preponderance in time, the decision on the English Act reject that view. It is held to mean residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence. The general mode of life is, therefore, relevant to a question of its application.

For the purpose of income tax legislation, it must be assumed that every person has at all times a residence. It is not necesary to this that he should have a home or a particular place of abode or even a shelter. He may sleep in the open.

I have deliberately refrained from giving any details of the facts in these cases or the conclusion reached since all the cases make it abundantly clear that the decision must depend on the specific facts in each case. I have referred to these cases therefore in an attempt to establish some basic principles which should be applied to the facts in the present case. Perhaps the best summary of the factors involved is found in the case of Kenneth F Feeder v MNR, [1975] CTC 256; 75 DTC 5160 in which my brother Mahoney, J. stated at 5163:

While the defendant here is far removed from the jet set, including any possible imputation of a preconceived effort to avoid taxation, the factors which have been found in those cases to be material in determining the pure question of fact of fiscal residence are as valid in his case as in theirs. While the list does not purport to be exhaustive, material factors include:

a. past and present habits of life;

b. regularity and length of visits in the jurisdiction asserting residence;

c. ties within that jurisdicton;

d. ties elsewhere;

e. permanence or otherwise of purposes of stay abroad.

The matter of ties. within the jurisdiction asserting residence and elsewhere runs the gamut of an individual’s connections and commitments: property and investment, employment, family, business, cultural and social are examples, again not purporting to be exhaustive. Not all factors will necessarily be material to every case. They must be considered in the light of the basic premises, that everyone must have a fiscal residence somewhere and that it is quite possible for an individual to be simultaneously resident in more than one place for tax purposes.

and later on the same page:

I am satisfied that had the defendant been asked, while in France, where he regularly, normally or customarily lived, Canada must have been the answer.

Turning now to the evidence, defendant, now retired and living in Monte Carlo testified that he came to Canada in 1922 from Austria with his mother and sisters and became a Canadian citizen in 1945 and is still retaining Canadian citizenship. He was married in 1943 and separated from his wife in 1947 or 1948 being given the custody of their child, a daughter. At various times he had lived with his mother then with his sister, brother-in-law and their child in a duplex on Pratt Avenue, Outremont, in the Montreal area, the lease of the premises being in his name. He had a friend, a Miss Rosemary Massey who looked after his daughter aged 9 in 1954. He provided an apartment and salary for her to do so.

In June 1954 he met John Doyle who invited him to join with him in the development of Canadian Javelin. He had previously been a prospector and interested in mining property. He went to New York with Doyle who maintained a suite at the Drake Hotel there which had two bedrooms, and that is where he stayed while working in New York promoting the sale of Canadian Javelin stock. Doyle also had a home in Greenwich, Connecticut which defendant occupied from time to time. He did not find hotel living strange as he had at one time lived in the Royal York Hotel in Toronto as a bachelor and subsequently with his daughter at the Ritz Carlton in Montreal. He had four sisters, his mother and grandfather in Montreal so it was logical to leave his daughter there with Miss Massey. Following a fire on Pratt Avenue in 1955, he obtained an apartment on Atwater Avenue for Miss Massey and his daughter. The lease covering the period from May 1, 1955 to April 1957 was made out to Miss Rosemary Massey but countersigned “the terms and conditions of this lease are hereby guaranteed by’’ and signed Robert M Sherwood. Above this appears the words “Boom-Strachan (Dominion Square Building)’’. This was one of Doyle’s companies and when he was working for Doyle in New York he always understood that he was nevertheless working on behalf of that company so he gave that name as his employer when the lease was signed. He stated that he never received any pay cheques from it however and that his expenses were always paid to him by Doyle in cash or occasionally by cheque on Doyle’s account. His arrangement with Doyle was that he would be paid all his expenses and if the financing in the Javelin Company was successful he would then be paid a large sum. He said that he was a public relations man for Doyle and traded in Javelin stock to keep an active and balanced market, doing this in his own name. He would sell shares of Javelin, turn the money over to Doyle who would then buy treasury shares which he would buy from Doyle. Javelin’s stock had been delisted from the Montreal Stock Exchange before he went to work with Doyle which is one reason why attempts to raise capital were made in the United States and Europe. He terminated his relationship with Doyle some time in 1957 but in the interval had raised considerable money for the company. Between the summer of 1954 and his break with Doyle in 1957 he would go to Europe on behalf of the company three to five times a year, staying a week or 10 days at a time. He also travelled throughout the United States, to Chicago, Pittsburgh, several times to Cleveland and also to Florida and Edmonton, staying two or three days at a time at each place. He never sought an immigration visa for the United States and when crossing the border would merely say that he was going on a visit to New York but he might then stay for months at a time although interrupted by frequent visits to his daughter in Canada. Airline records of Trans-Canada Airlines show some 35 one-way trips, all between Montreal and New York between June 1955 and September 1957, with the exception of two trips to Toronto. Some of the tickets were issued in the name of Traznik who the witness Sherwood explained was Doyle’s brother-in-law and provided him with the tickets. He said that these were for trips to see his daughter although paid for by the company.

In October 1956 he bought a house on Shorncliffe Avenue in Westmount for his daughter and Miss Massey although he transferred title to the National Trust Company. Substantial renovations were done costing over $30,000 so it took eight months to get it ready for their occupancy. He kept bank accounts in Montreal with substantial balances ledger sheets being produced for his current account at the Bank of Montreal from January 4th, 1954 to November 5th, 1958 when it was closed. In July 1956 there was over $61,000 in this account and nearly $50,000 in November 1957. In April 1958, the balance, at that time small, was transferred to a joint account in his name and/or Miss Rosemary Massey. This account also had substantial balances, amounting to over $26,000 in July 1958. In February 1958 he opened another account, his address being shown as 21 Shorncliffe Avenue, Westmount; a notation on the entry sheet indicating “no entries except under consent of Manager or Assistant Manager”. This account was opened with a credit of $150,000 and it reached over $220,000 by July 1958. A considerable list of securities were held for safe keeping for him by the Bank of Montreal, Sun Life, Montreal in 1957 and 1958. He testified that one of his accounts was to cover bills in connection with the house, furnishings, and renovation of it, and he would have money transferred from New York for this. He had another account with more substantial funds and securities to which Miss. Massey would have access after his death. He stated that these accounts were never used for stock trading as all his trading had been done in New York. With respect to his dealings in securities this account was administered for him by an investment counsellor.

He also owned a home in Mont Rolland in Quebec which he provided for his sisters to use on weekends. They looked after the maintenance of it. He never used this himself.

In addition to his trips to Canada by Air Canada he came from time to time in one of the Javelin Company’s private planes, or would drive up in Doyle’s car. He did not own a car himself until 1957.

He never stayed in the two-bedroom premises leased on Atwater Avenue for Miss Massey and his daughter but would stay at the Ritz Carlton Hotel in Montreal during his visits. While working in New York he met another woman, now his wife, and maintained an apartment for her there although he was somewhat vague as to the dates, or whether this commenced in 1955, 1956 or 1957. He also rented a property at Palm Beach and later bought property there in about 1956, which he still owned until recently, but was somewhat vague about dates, possibly due to the considerable passage of time. He believes his remarriage was in 1958. The apartment where he is now living in Monte Carlo is rented. Starting in 1958 he lived with his new wife in Geneva in rented premises and two years later bought a house there which he retained until three years ago. The property on Shorncliffe Avenue was retained until about 1961 when his daughter left Canada with him for Europe. Proceeds of the sale were put in the daughter’s name in a bank in Geneva to be released to her when she became of age. He did not live in the Drake Hotel in New York since the latter part of 1957 as he was no longer on good terms with Doyle whom he later sued. He then went to the Ritz Tower in New York and then to Geneva. While living in Geneva he spent his winters in Florida, and has bank accounts in New York, Geneva, Palm Beach and Monte Carlo. He insists that he never resided in Canada after leaving Pratt Avenue in 1955.

He never filed income tax returns in the United States although he considered himself a resident there. He said that since he was not there legally he did not wish to attract attention to himself. He did file returns in Canada however in 1958 and 1959. His 1958 return. contains the statement that he became resident in Canada on September 1, 1957, and had no taxable income to December 31, 1957, his address given as 21 Shorncliffe Avenue, Westmount. The same address is given in his 1959 return. He testified that these returns were prepared for him by Clarkson, Gordon, his accountants and he signed them. Initially his daughter did not wish to go to Europe because of problems with her mother. He did not wish to encounter any problems if he had to return to Canada to live so he consulted with his tax accountants who advised him to file these returns. This clearly does not absolve him of responsibility for the contents thereof. The action in the Superior Court in the Province of Quebec against Doyle was settled by a Memorandum of Agreement dated June 23rd, 1958, in which he describes himself as being “of the City of Westmount’’. In the proceedings themselves he filed an affidavit sworn to in Montreal on January 28, 1958, in which he designates himeslf as being “of the City of Westmount, District of Montreal’’ and therein residing and domiciled at 21 Shorncliffe Avenue.

David Weinberg, a court reporter from New York was called who testified that he had been a hearing reporter in 1957 for the New York State Attorney General’s Office. While he does not specifically recall taking the evidence of Sherwood he was shown a transcript of what purports to be evidence taken from him on various dates in 1957. He Stated that at these investigations the stenographer was not required to sign the transcript. While he acted as a reporter at one of the examinations others acted on other occasions. He stated that Eugene Rossides whose name appears as Assistant Attorney General at the examination occupied this office at the time to his knowledge. The transcripts are attached to a certification of one Orestes J Mihaly who under oath states that he is Assistant Attorney General in charge of the Bureau of Securities of the Department of Law of the State of New York and that on June 26, 1974, he transferred to the law firm of Diamond and Golomb xerox copies of transcripts of Robert Maurice Sherwood taken at that office during 1957 which are part of the official records of the office. The witness destroyed his notes of the examination many years ago in accordance with standard practice.

Defendant, while objecting to the admissibility of this evidence agreed that if Mihaly were called as a witness he would say that it is a true transcript of notes found in his records.

When confronted with the transcript of a portion of his examination taking place on March 31, 1957, in which in answer to the question “Were you ever a resident of New York State? the answer given was “Never’’, followed by answers indicating that he had not travelled throughout New York State nor visited in upstate cities except for some 10 years previously to Buffalo and Rochester, and that he had only been to Long Island twice in the last three years, Sherwood stated that he could neither recall nor deny having made these statements.

When questioned on discovery, portions of which were read into evidence as to the same statements Sherwood again replied that he did not recall giving this evidence nor did he deny it but when asked if it was possible that he could have said it he said:

A I may have said it, and I might have said it for the following reasons: because in these various cases in New York State, it was always a question of what right I had to be in the United States, so I tried to distance myself from Claiming that I had residence in the United States.

Q Are you implying that you lied in these. . . .

A I don’t think I lied but I relied on the fact that I spent a great deal of time in Europe, in South America and therefore I felt that my answer was quite honest.

Q And when you were travelling in South America, were you acting in the Same capacity as you were acting in New York, the promotion of the Canadian Javelin. . . .

A No, I went to South America because I purchased mining properties there, that was my reason for South America and Europe. I went to further the cause of Canadian Javelin.

Q The promotion of the stock?

A That is right.

Q Would you have spent more time in Europe than in New York carrying out these activities?

A No, I would say it was, I cannot recall just how much time I would have spent, I spent a great deal of time travelling, I spent a fair time in Palm Beach where I would go very frequently in those years, how many trips, I don’t know.

Q Would you have spent as much time in Europe as you did in New York with respect to the promotion of the Canadian Javelin stock?

A I would say about the same.

Q About the same?

A Yes.

While the transcript itself may not be admissible as such, the witness’s evidence on discovery is and I believe clearly indicates the Situation. It is evident that defendant did not wish to make any statement as to residence or business dealings in the United States which would attract income tax liability there, or, even more serious, the possibility that his presence there was illegal, or that some of his stock dealings or promotions were not being done in accordance with the laws of New York State. It is not the responsibility of this Court to make any finding on such issues save to the extent that they bear on the question as to whether he was ordinarily resident in Canada or a resident of the United States during the years in question. He is in the difficult position, however, of having to attempt to explain written statements made by him in leases, income tax returns, and even an affidavit used in proceedings in Canada, to say nothing of addresses shown for him in bank records, all indicating a Canadian residence, and nevertheless of contending that, on the facts, he was not “ordinarily resident” in Canada following 1954.

On the basis of all this evidence I conclude as a question of fact that defendant was ordinarily resident in Canada during the years from 1954 to 1958. There is no indication whatsoever of his having severed his ties with Canada nor having established a residence of any permanency in the United States. In fact all his family ties up to the date of his remarriage remained in Canada. His daughter to whom he is obviously very attached remained in Montreal looked after by a trusted friend. His mother and sisters whom he also helped to support by providing residences for them remained there. He had an investment counsellor in Canada handling Canadian investments for him and bank accounts in which he made liberal provisions not only for the support and maintenance of his daughter, but for the continuation of this in the event of his death. He made very frequent trips to Canada to see his daughter and family. While in the United States he never established any legal residence or status. Undoubtedly he spent a great deal of time there in connection with his work for Doyle, but even this employment was of a relatively transient nature lasting only from 1955 until near the end of 1957, and involved frequent trips abroad which in his examination for discovery he indicated occupied about the same time as the time he spent in New York, although he altered this evidence at trial saying he only visited Europe three to five times a year staying a week or 10 days at a time. While in New York he merely stayed in a hotel suite provided for him by his employer or his employer’s residence. He filed no tax returns in the United States. Except that his business activities were of necessity being carried on primarily in New York there is no indication that he established any ties within the United States at least until he met his present wife and that any such ties were severed in any event soon after his remarriage when he established residence in Europe. Even his employer is not an American company but either Boom-Strachan a Canadian corporation or Doyle a Canadian.

It is true that he had established his present wife in an apartment in the Ritz Tower in New York although he could not be precise as to whether this was in the year 1955, 1956 or 1957 and that he had also stayed at Palm Beach in rented premises and later bought property there which he believes was in 1956. He testified that he did not live with his present wife at her apartment but occupied the hotel suite intermittently until his break with Doyle late in 1957. His remarriage, which he thinks was in 1958 did not of course take place until following his divorce which he said was in late 1957 or early 1958. He also testified that he left the Drake Hotel in the latter part of 1957 after his break with Doyle and went to the Ritz Tower before going to Europe and Geneva.

While it might perhaps have been contended that following his remarriage and the taking of his daughter from Montreal to Europe he had severed his ties with Canada he largely destroyed the possibility of any such presumption by filing income tax returns in Canada for the 1958 and 1959 taxation years in which he describes himself as resident in Canada. In any event the amount involved in his 1958 and 1959 assessments is comparatively trivial and certainly he has failed to establish that he was not ordinarily resident in Canada during the years from 1954 to 1957, despite the fact that he was spending most of his time during these years carrying on business assignments in New York, Europe or elsewhere.

The assessments and reassessments made by the Minister for defendant’s 1953, 1954, 1956, 1957, 1958 and 1959 taxation years are therefore confirmed and plaintiff’s statement of claim is maintained with costs against defendant.