Prescott v. The Queen, 96 DTC 1372, [1995] 2 CTC 2068 (TCC)

Rowe D.J.T.C.C.:—The appellant appeals from an assessment for income tax for his 1991 taxation year in which the Minister of National Revenue (the "Minister”) included into the appellant’s income the sum of $2,474 received as income from employment, which the appellant had not reported in his return of income.

The appellant is a resident of Point Roberts, Washington, U.S.A. and was not a resident in Canada throughout the 1991 taxation year. The appellant is a barrister and solicitor employed by the law firm of Russell & Dumoulin, of Vancouver, British Columbia, and was so employed throughout the 1991 taxation year. In that year the appellant received employment income of $56,939.19 from Russell & Dumoulin. In the same taxation year, the appellant was also employed by Simon Fraser University, Burnaby, British Columbia from which he earned employment income in the sum of $2,474.

The position taken by the appellant is that the amount of $2,474 earned by him from employment at Simon Fraser University should not be included in computing his income for the 1991 taxation year because that amount, being less than $10,000, is exempt from taxation in Canada on the basis of Article XV of the Canada-U.S. Income Tax Convention (1980). The Minister’s position is that the exempting provisions of Article XV of the Canada-U.S. Tax Treaty do not apply because the remuneration derived by the appellant, in respect of an employment exercised in 1991 in Canada, exceeded $10,000 Canadian. The basis for this position is that the appellant’s income at the law firm of Russell & Dumoulin, by virtue of the provisions of section 3 and subsection 5(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act”), must be added to the amount of the income earned from Simon Fraser University and that the total remuneration was borne by employers resident in Canada.

Article XV of the Treaty is as follows:

Dependent Personal Services

1. Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government Service), salaries, wages and other similar remuneration derived by a resident of a contracting state in respect of an employment shall be taxable only in that state unless the employment is exercised in the other contracting state. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other state.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a contracting state in respect of an employment exercised in a calendar year in the other contracting state shall be taxable only in the first- mentioned state if:

(a) such remuneration does not exceed $10,000 in the currency of that other state; or

(b) the recipient is present in the other contracting state for a period or periods not exceeding in the aggregate 183 days in that year and the remuneration is not borne by an employer who is a resident of that other State or by a permanent establishment or a fixed base which the employer has in that other state.

The Technical Explanation, 1984, by the U.S. Treasury Department, approved by the Government of Canada, is an official guide to the Convention and reflects policies behind particular Convention provisions, as well as understandings reached with respect to the interpretation and application of the Convention. The reference in the Technical Explanation to Article XV is as follows:

Dependent Personal Services

Paragraph 1 provides that, in general, salaries, wages, and other similar remuneration derived by a resident of a contracting state in respect of an employment are taxable only in that state unless the employment is exercised in the other contracting state. If the employment is exercised in the other contracting state, the entire remuneration derived therefrom may be taxed in that other state but only if, as provided by paragraph 2, the recipient is present in the other state for a period or periods exceeding 183 days in the calendar year, or the remuneration is borne by an employer who is a resident of that other state or by a permanent establishment or fixed base which the employer has in that other state. However, in all cases where the employee earns $10,000 or less in the currency of the state of source, such earnings are exempt from tax in that state. ’’Borne by" means allowable as a deduction in computing taxable income. Thus, if a Canadian resident individual employed at the Canadian permanent establishment of a U.S. company performs services in the U.S., the income earned by the employee from such services is not exempt from U.S. tax under paragraph 1 if such income exceeds $10,000 (U.S.) because the U.S. company is entitled to a deduction for such wages in computing its taxable income.

The appellant submits the Treaty refers to ”an employment" and not to ’’all employment". Since the employment with Simon Fraser University was "an employment" separate and apart from his employment with Russell & Dumoulin, and the income earned from Simon Fraser University was less than $10,000, it should not be taxable in Canada.

Counsel for the respondent stated the Minister is relying on the Interpretation Act, R.S.C. I-21, in particular, subsection 33(2) which reads:

Words in the singular include the plural, and words in the plural include the singular.

As a result, the Minister sees "an employment" as being included in all employment by the appellant during 1991 in Canada and forming part of total employment income.

Black's Law Dictionary, Fifth Edition, West Publishing Co., 1979, defines "an" in this way:

An. The English indefinite article, equivalent to "one" or "any"; seldom used to denote plurality.

The appellant also relied on the definition of "an" as found in Webster’s New World Dictionary, Second College Edition, as follows:

1. one; one sort of [to bake an apple pie]

2. each; any one [pick an apple from the tree]

3. to each; in each; for each; per [two an hour]

The Income Tax Conventions Interpretation Act, R.S.C. 1985, c. 1-4, at section 3 is:

Section 3 Meaning of undefined terms

3. Notwithstanding the provisions of a convention or the Act giving the convention the force of law in Canada, it is hereby declared that the law of Canada is that, to the extent that a term in the convention is

(a) not defined in the convention,

(b) not fully defined in the convention, or

(c) to be defined by reference to the laws of Canada,

that term has, except to the extent that the context otherwise requires, the meaning it has for the purposes of the Income Tax Act, as amended from time to time, and not the meaning it had for the purposes of the Income Tax Act on the date the convention was entered into or given the force of law in Canada if, after that date, its meaning for the purposes of the Income Tax Act has changed. 1984, c. 48, section 3.

In section 248 of the Income Tax Act, ’’employment” means:

the position of an individual in the service of some other person (including Her Majesty or a foreign state or sovereign) and "servant" or "employee" means a person holding such a position;

The Income Tax Act in paragraph 4(1 )(a) requires that:

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 he 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 his 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; and

Income from office or employment is defined this way at section 5 of the Income Tax Act:

5(1) Subject to this Part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.

Since the effective date of the Canada-U.S. Convention, there has been no change to the Income Tax Act requiring any redefining of the word "an" or to the word "employment".

In Saunders v. M.N.R., (1954) 11 Tax A.B.C. 399, 54 D.T.C. 524, Mr. R.S.W. Fordham, Q.C. of the Tax Review Board, on the issue of the method to be followed in interpreting a tax convention, stated at page 402 (D.T.C. 526):

The accepted principle appears to be that a taxing Act must be construed against either the Crown or the person sought to be charged, with perfect strictness-so far as the intention of Parliament is discoverable. Where a tax convention is involved, however, the situation is different and a liberal interpretation is usual, in the interests of the comity of nations. Tax conventions are negotiated primarily to remedy a subject’s tax position by the avoidance of double taxation rather than to make it more burdensome. This fact is indicated in the preamble to the Convention. Accordingly, it is undesirable to look beyond the four corners of the Convention and Protocol when seeking to ascertain the exact meaning of a particular phrase or word therein.

It is obvious that an individual can have more than one employment with more than one employer, during the same taxation year. There may be different tax considerations applying to each source of income derived from each employer. From a taxpayer’s employment as a school teacher, automobile expenses would not ordinarily be deductible but if that individual were to moonlight delivering pizza then car expenses to earn that particular source of income could be deducted in the process of determining income for taxation purposes. For purposes of the Unemployment Insurance Act, each insurable employment would call for a separate record of employment to be issued in the event of termination of one of the employments. I fail to see why Article XV of the Convention is not to be given its plain, ordinary meaning based on the usual and well recognized definition of the indefinite article, "an". It would have been a simple thing for the Treaty to have referred to "all employment" if the contracting states intended it to operate under circumstances where a resident of a contracting state had other employment in a taxation year, which when added to the employment of less than $10,000 earned at the secondary or other employment, was in excess of the said sum of $10,000. It did not do so. Indeed, it would seem that one of the purposes of such a Convention is to eliminate the need for each country to require an individual to include into income from an employment those amounts under $10,000 (in the currency of that other state) and for that reason it is specifically excluded. The appellant, then, can report that amount to the U.S. Internal Revenue Service on the basis that such sum was earned at a time during which he was resident in the U.S. and that said employment by Simon Fraser University in Canada was an employment from which the remuneration did not exceed $10,000 Canadian.

The appeal is allowed. The assessment is referred back to the Minister for reconsideration and reassessment on the basis that the sum of $2,474 received from Simon Fraser University be deleted from income for the 1991 taxation year.

The appellant is entitled to costs but not to any counsel fee.

Appeal allowed.