Residence of Mr. Conrad Black

30 Apr

Poor Conrad Black, Baron Black of Crossharbour ! As though the assault and psychological horror inflicted on him by the authorities were not enough (disregarding legal and ethical considerations). He has now had the shame of having his affairs paraded before the Tax Court of Canada, for no apparent valid reason. The Court found his arguments to have no support in precedent or common sense, and it is unclear how the poor man was induced to file in court at all. G Conrad Black v The Queen 2008-2896 (IT) (TCC), January 14 2014.

In the tax year 2002, the taxpayer was resident of both Canada and the United Kingdom, under the domestic law of each country. Since his centre of vital interests was in the United Kingdom, the Canada-U.K. income tax treaty deemed him to be U.K. resident for purposes of the treaty.

Since the taxpayer did not establish a U.K. domicile, he was taxed in the United Kingdom under the fabled remittance system, which allows individuals ordinarily U.K. resident, but lacking a U.K. domicile, to pay U.K. tax only on income remitted to the United Kingdom, not income remitted or maintained offshore. The tax treaty specifies that any treaty relief from Canadian tax is granted only in respect of income that is subject to U.K. tax under the remittance regime, i.e., treaty benefits do not apply to income maintained offshore.

The taxpayer was induced to argue that, on the above basis, he should be treated as not resident in Canada for domestic law purposes. Thus, the taxpayer argued that he should be free from Canadian tax on non-Canadian employment income (approximately $2.8 million), on various shareholder benefits (approximately $2 million) and on investment income from non-Canadian sources (approximately $350K).

The only authority that the taxpayer could cite for his position, was a provision in the treaty-enabling statute, to the effect that the treaty prevailed to the extent of any inconsistency with domestic law. The taxpayer tried to argue that there was an inconsistency between Canadian domestic law treating him as resident, and the treaty, which treated him as U.K. resident. The Court properly found that there was no conflict whatsoever. In order for the treaty-tie breaker rule to apply, the taxpayer has first to be resident in Canada (and the United Kingdom) under domestic law. There is no authority under the treaty for concluding that taxpayer becomes not resident of Canada for any domestic law purpose, other than those purposes covered by the treaty. The treaty deals with specified items of income only, and none of the items in issue was regulated by the treaty.

The taxpayer was once advised by Canada’s leading tax law firm. It is difficult to believe that this firm would have led him into court over these issues. He was represented in this case by a Queen’s Counsel from Davis LLP, which is a good firm but not as prominent in tax. Still, even this firm is deemed to understand elementary tax treaty principles. Perhaps taxpayer was misled by accountants or other advisors, and found himself in a position that he and counsel decided had to be asserted, for better or worse.

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