Smyth v. The Queen

Smyth v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2007-02-02 Neutral citation 2007 TCC 366 File numbers 2005-4329(IT)I Judges and Taxing Officers Brent Paris Subjects Income Tax Act Decision Content 0001 TAX COURT OF CANADA ____________________________________ Court Number 2005-4329(IT)I BETWEEN: JAMES R. SMYTH Appellant - and - HER MAJESTY THE QUEEN Respondent ______________________________________________ DECISION February 2, 2007 Held at the Federal Court of Canada Edmonton, Alberta Volume 1 _______________________________________________ TAKEN BEFORE: The Honourable Mr. Justice Brent Paris 0002 APPEARANCES TAKEN BEFORE: The Honourable Mr. Justice Brent Paris -------------------------------------- (No Counsel) Appeared for the Appellant Darcie E. Charlton, Esq. Appeared for the Respondent -------------------------------------- Irene Anselmo Court Registrar Deanna Jackson, CSR(A) Realtime Reporter * * * * * * * * * * * * * * * 0003 TABLE OF CONTENTS PAGE APPEARANCES 2 OPENING REMARKS 4 DECISION 4 CLOSING REMARKS 16 * * * * * * * * * * * * * * * 0004 01 (PROCEEDINGS COMMENCED AT 12:54 P.M.) 02 THE REGISTRAR: Order, all rise. 03 The Court will now 04 render a decision in Appeal 05 Number 2005-4329(IT)I between James R. Smyth, 06 the appellant, and Her Majesty the Queen, the 07 respondent. 08 JUSTICE PARIS: Thank you. Please be 09 seated. 10 This is an appeal from a 11 reassessment of the appellant's 2001 and 2002 12 taxation years by which the Minister of 13 National Revenue disallowed his claim for the 14 overseas employment tax credit. The appellant 15 claimed an overseas employment tax credit of 16 $11,153 in 2001, and $38,448 in 2002 in respect 17 of his employment income earned in Kosovo where 18 he provided police services within the context 19 of the United Nations Mission there. 20 The issues in this 21 appeal are whether the appellant qualifies 22 under 23 Section 122.3 of the Income Tax Act for an OETC 24 in these years, and if not, whether any 25 deduction is available to him under 0005 01 paragraph 110(1)(f) of the Act. 02 The facts relied upon by 03 the Minister in reassessing the appellant are 04 set out in paragraph 10 of the amended 05 reply to notice of appeal and will form part of 06 these reasons. (annexed as schedule 1) 07 The respondent has 08 indicated in the amended reply that the 09 appellant provided police services in Kosovo 10 rather than Bosnia Herzegovina as originally 11 assumed. This was born out by the evidence, 12 and nothing turns on this minor error in the 13 assumptions. 14 Section 122.3 sets out 15 several conditions that must be met in order 16 for a taxpayer to qualify for the tax credit. 17 The relevant parts of Section 122.3(1) 18 read as follows: 19 If an individual is resident in 20 Canada in a taxation year and, 21 throughout any period or more than 6 22 consecutive months that began before 23 the end of the year and included any 24 part of the year... 25 (a) was employed by a person who was a 0006 01 specified employer, other than for the 02 performance of services under a 03 prescribed international development 04 assistance program of the Government 05 of Canada, and 06 (b) performed all or substantially all 07 the duties of the individual's 08 employment outside Canada 09 (i) in connection with a contract 10 under which the specified employer 11 carried on business outside Canada 12 with respect to... 13 (C) any prescribed activity, or 14 (ii) for the purpose of obtaining, on 15 behalf of the specified employer, a 16 contract to undertake any of the 17 activities referred to {above}..." 18 Section 122.3 then sets out the 19 method of calculating the OETC. 20 The first question that 21 must be decided is by whom the appellant was 22 employed while working in Kosovo. The 23 appellant argues that he was employed by the UN 24 in Kosovo and that his employment relationship 25 with the Edmonton Police Service was severed 0007 01 prior to his commencing work in Kosovo. 02 He referred to the 03 evidence of two witnesses from the Edmonton 04 Police Service who had participated in the same 05 UN Mission in Kosovo, as well as to his own 06 evidence that the work done there was outside 07 the collective agreement between the Edmonton 08 Police Service and Edmonton Police Association 09 and that, in particular, the terms of the 10 collective agreement relating to working hours 11 and working conditions were not adhered to. 12 The appellant also 13 referred to a document, Exhibit A-4, entitled 14 "Certification of Employment," issued by the 15 assistant director of administration, UN 16 Mission in Kosovo Police, that certified that 17 the appellant was employed as a civilian police 18 officer by the UN Mission in Kosovo. It also 19 stated the appellant was compensated at a rate 20 of $71 US a day while employed with the UN 21 Mission in Kosovo Police. 22 I cannot agree with the 23 appellant's arguments on this point. The 24 evidence of Sergeant Glen Hayden of the 25 Edmonton Police Service, who was a member of 0008 01 the Edmonton Police Association executive, was 02 that the appellant did not cease to be a member 03 of either the Edmonton Police Service or the 04 Edmonton Police Association while with the 05 UN Mission. 06 The documentary evidence 07 shows the appellant received his regular salary 08 from the Edmonton Police Service and was 09 entitled to certain benefits provided in the 10 collective agreement. Those benefits included 11 credit for calculating his seniority and 12 pension in respect of time worked in Kosovo and 13 coverage under medical and dental plans. 14 I can see nothing in the 15 documentation to suggest that the appellant's 16 employment with the Edmonton Police Service was 17 severed at any point in the years in issue. It 18 appears, rather, the appellant was permitted 19 within the course of his employment to 20 participate in the Kosovo Mission under the 21 conditions set out in Exhibit R-1, the letter 22 of agreement between the Edmonton Police 23 Service, the RCMP, and the appellant and his 24 coworker, Constable Stolarchuk. 25 The fact that the 0009 01 Edmonton Police Service was a signatory to that 02 agreement is indicative of the ongoing 03 relationship between the individual 04 participants and the EPS. And in particular, I 05 refer to paragraph 2.1 and 2.2 of the agreement 06 by which the Edmonton Police Service agrees to 07 provide the participants as part of the 08 UN Mission and to make them available for the 09 Mission. 10 The Edmonton Police 11 Service also retained control over the 12 participants in the event that they failed to 13 comply with the UN operational guidelines for 14 the UN Police Force. 15 The fact that the 16 Edmonton Police Service was reimbursed the cost 17 of the participant's salary and benefits by the 19 RCMP does not alter the pre-existing employment 20 relationship, and I note that the agreement 21 also provided that the participants would not 22 be considered employees of the RCMP. 23 With respect to the 24 certification of employment issued by the 25 United Nations Mission in Kosovo, Exhibit A-4, 0010 01 there is no evidence as to the basis on which 02 the certification was made. The document does 03 not purport to be a contract of employment, and 04 no contract between the appellant and the UN 05 was produced at the hearing. 06 To the extent that 07 Exhibit A-4 contradicts the arrangements made 08 by the Edmonton Police Service, the RCMP, and 09 the appellant himself regarding the his 10 participation in the mission as set out in the 11 letter agreement, I would attach little weight 12 to it. It appears to have been prepared for 13 limited purpose and cannot be taken to 14 displace the letter agreement without the 15 express consent of all of the parties to the 16 letter agreement. 17 The appellant may have 18 taken on duties and responsibilities outside of 19 those of a normal police officer working in 20 Edmonton, but this was by agreement between 21 Edmonton Police Service and the appellant. 22 Similarly, the appellant agreed to perform the 23 work according to the conditions set out in the 24 UN guidelines. 25 There is nothing before 0011 01 me to show that the appellant was prevented 02 from agreeing to these terms and conditions 03 while continuing his employment with the 04 Edmonton Police Service. Therefore, I find 05 that the appellant was in fact employed by the 06 Edmonton Police Service while performing his 07 duties in Kosovo. 08 The next matter to be 09 decided is whether the work performed by the 10 appellant in Kosovo was performed in connection 11 with a contract under which the Edmonton Police 12 Service carried on business outside Canada as 13 required by Subsection 122.3(1) of the act. 14 The appellant argues 15 that it is sufficient for the Edmonton Police 16 Service to provide services in connection with 17 a contract under which the RCMP carried on 18 business outside Canada. He relies in this 19 respect on the decision of this Court in 20 Gonsalves v. The Queen, 2000 DTC 1491. 21 The difficulty with this 22 position is that in order for either the 23 Edmonton Police Service or the RCMP to be found 24 to be carrying on business, there would need to 25 be evidence that they were undertaking the 0012 01 policing activities in Kosovo for profit. This 02 requirement flows from the Federal Court of 03 Appeal decisions in Dansereau v. The Queen, [2001] F.C.J. No. 1560 04 and Timmins v. The Queen, [1999] 2 F.C. No. 563. This profit must 05 be a pecuniary profit and not a notional 06 benefit as suggested by the appellant. 07 There is nothing to 08 suggest that the Edmonton Police Service or the 09 RCMP participated in the policing activity in 10 Kosovo for a pecuniary or financial profit. 11 Therefore, the appellant's work in Kosovo does 12 not meet the conditions set out in 13 subparagraph 122.3(1)(b)(i) of the Act. 14 Furthermore, there is no 15 evidence to show that the policing work in 16 Kosovo was a prescribed activity within the 17 meaning of sub subparagraph 122.3(1)(b)(ii)(c), 18 which requires that the work be performed in 19 connection with a contract with United Nations. 20 I cannot accept the appellant's suggestion that 21 the documents entered in evidence are 22 sufficient to show such a contract existed. 23 The basis and terms on 24 which the Canadian police officers were made 25 available to the UN has not been shown, and it 0013 01 is not open for me to speculate as to the 02 nature of those agreements. 03 For these reasons, I 04 find that the appellant's employment in Kosovo 05 does not meet the conditions set out in 06 subparagraph 122.3(1)(b)(i) of the Act, and he 07 is not entitled to the OETC for 2001 and 2002. 08 While the appellant did 09 not present any arguments to support a claim 10 for deduction under paragraph 110(1)(f) of the 11 Act, he did raise the matter in his Notice of 12 Appeal, and counsel for the respondent 13 addressed the point. 14 I agree with the 15 respondent that no deduction under that 16 provision is available. I have already found that the 17 appellant was employed by the Edmonton Police 18 Service during the relevant period, and 19 therefore, his income from employment does not 20 fall within 110(1)(f)(iii), which is income 21 from employment with a prescribed international 22 organization. Furthermore, 25 subparagraph 110(1)(f)(v) was not added to the 0014 01 Act until 2005 and is only applicable to 02 taxation years after 2003. 03 The appellant also 04 challenges the interest and penalties assessed 05 by the Minister in this case. The appellant 06 points out that he claimed the credit on the 07 advice of his employer and, in particular, upon 08 the advice of Daniel Jones who heads the 09 international peacekeeping policing program at 10 the Edmonton Police Service. 11 Jones also was one of 12 the first members of the Edmonton Police 13 Service to serve in Kosovo. Jones gave 14 evidence that he made inquiries at the Edmonton 15 CRA office as to whether he was entitled to the 16 overseas employment tax credit for income he 17 earned while working in Kosovo under the same 18 program as the appellant later worked and was 19 told he qualified. 20 Jones, on behalf of the 21 Edmonton Police Service, subsequently advised 22 other participants that they were able to claim 23 the credit. Evidence was also given by 24 Constable Stolarchuk that there was a great 25 deal of confusion at the CRA over her claim for 0015 01 the OETC which was initially disallowed, then 02 allowed, and finally disallowed again. 03 There is ample 04 jurisprudence to the effect that the Minister 05 is not bound by the representations of his 06 employees, and the Court does not have the 07 jurisdiction to order that penalties and 08 interest be reduced except where the act -- 09 where the appellant has shown that those 10 amounts were not calculated and imposed in 11 accordance with the provisions of the 12 Act. 13 The appellant did not submit 14 that the penalties and 15 interest were not in accordance with the Act 16 but suggested that, as a matter of 17 equity, they should be deleted. Unfortunately, 18 I do not have the power to do that. I can, 19 however, express my opinion that this would be 20 an appropriate case for the waiver of penalty 21 and interest under the provisions of the 22 fairness package for the period preceding the 23 reassessment, given that the appellant's claim 24 for the overseas employment tax credit was 25 based on erroneous advice provided by the CRA. 0016 01 For all these reasons, 02 the appeal is dismissed. Thank you. 03 MR. SMYTH: Thank you, Your Honour. 04 THE REGISTRAR: This case is now closed. 05 Court will resume at 06 two o'clock this afternoon. 07 (PROCEEDINGS CONCLUDED AT 1:07 P.M.) 08 09 * * * * * * * * * * * * * * * 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SCHEDULE 1 10. In so reassessing and confirming the tax of the Appellant, the Minister relied on the same assumptions of fact, as follows: (a) throughout the 2001 and 2002 years, the Appellant was a resident of Canada; (b) during the 2001 and 2002 years, the Appellant was employed by the Edmonton Police Service, (“EPS”); (c) EPS entered into an agreement with Her Majesty the Queen in right of Canada as represented by the Royal Canadian Mounted Police, (the “RCMP”) to provide police services on international peace support operations, (the “Agreement”); (d) pursuant to the Agreement, the Appellant provided police services in Bosnia-Herzegovina from November 2, 2001 to August 2, 2002; (e) the Appellant received employment income from EPS in 2001 and 2002 of $82,840.00 and $67,851.00 respectively; (f) the Appellant did not receive any other employment income in the 2001 and 2002 years, other than the amounts received from the EPS; (g) the Appellant claimed the OETC based on employment income earned while in Bosnia-Herzegovina of $11,153.00 in 2001 and $38,448.00 in 2002; (h) neither the RCMP or the EPS carried on business outside of Canada; and (i) the EPS did not have a contract with the United Nations.