Tax Court of Canada


Income tax

Residence in Canada

Tax treaty not having direct bearing on case where taxpayer resident of Canada for tax purposes

Taxpayer corporation was incorporated in Netherlands by husband and wife who were residents of Netherlands and who immigrated to Canada. Spouses sold bulk of Netherlands farm to third party, resigned as directors and wife’s sister was appointed director. After immigrating to Canada, husband and wife purchased existing dairy farm, and transaction was structured that spouses owned 51 per cent interest and taxpayer owned 49 per cent interest in farm partnership, and from 1998 to 2009, taxpayer filed tax returns as non-resident. In late 2009, spouses incorporated dairy farm, B Ltd. under Ontario law and transferred 51 per cent interest in farm partnership to B Ltd.. Shortly thereafter, taxpayer disposed of its interest in farm partnership to B Ltd., which resulted in capital gain of almost two million dollars. B Ltd. wrote to Minister to disclose transaction, who acknowledged that partnership interest was treaty-protected property as result of Canada-Netherlands Tax Treaty. Minister assessed taxpayer for 2009 taxation year under part I and part XIV of Income Tax Act. Taxpayer appealed. Appeal allowed. It was found that by issuing assessment under both parts of Act, Minister took position that partnership interest was not treaty-protected property as defined in section 248 (1) of Act. Evidence of various correspondence and communication with Canadian-based advisors and Netherland-based accountants all suggested quite clearly that it was spouses who assumed effective and independent control of taxpayer and on that basis, it was found that taxpayer was resident of Canada and liable for tax under part I of Act. As taxpayer was found to be resident of Canada for tax purposes, it was concluded that tax treaty did not have direct bearing on this case. Conclusion that taxpayer was Canadian resident did not trigger deemed disposition or analysis of s. 128.1 (1) of Act since there was no evidence taxpayer actually ceased to be resident of Netherlands. As Minister had conceded that taxpayer should not have been assessed concurrently under part I as resident and under part XIV as non-resident, then clearly part XIV tax did not apply and that part of assessment should be vacated.

Landbouwbedrijf Backx B.V. v. The Queen (2018), 2018 CarswellNat 3735, 2018 TCC 142, Guy R. Smith J. (T.C.C. [General Procedure]).

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