Nonis v. R. – TCC: Minister’s allocation of employment income earned in Canada by a non-resident was not reasonable – taxpayer’s appeal allowed

Nonis v. R.  – TCC:  Minister’s allocation of employment income earned in Canada by a non-resident was not reasonable – taxpayer’s appeal allowed

Nonis v. The Queen (April 14, 2021 – 2021 TCC 31, Bocock J.).

Précis:  Mr. Nonis was an American resident who worked a few days a year in Canada for a period of time.  He filed his 2013 and 2014 returns prorated based on the number of days he spent in Canada in those years.  This was accepted by the Minister.  For 2015 and 2016 he followed the same proration method but the Minister rejected it and imposed the ratios used in 2013 and 2014 even though Mr. Nonis spent fewer days in Canada in 2015 and 2016:  37 days and zero days, respectively.  Bocock J. allowed Mr. Nonis’ appeal holding that the Minister’s alleged discretion to use a notional proration was not a reasonable statutory construction under the circumstances.

Decision:   This was a case dictated by pure common sense:

[73] There is only one contract before the Court. It was never changed or amended, aside from a term extension. It was exercisable in two jurisdictions (or places), at least until the Notice Date, and thereafter, in only one jurisdiction (or place), the USA. There are not two contracts, one payable a certain time in one place and a second payable at a different time in another, but one contract referable to services to be performed in only or partially in one place.


[74] Should the Respondent’s argument be accepted, this type of second contract or distinct remuneration would be rendered identical with other types of singular contracts that are for services to be performed in Canada by non-resident employees. There would be no distinction between a contract which compensates an individual for entering or not entering into an agreement for services to be performed in Canada and a contract for services to be performed, in part or full, in Canada. Both types of contracts would deem the individual to be employed in Canada. As stated above, a broad interpretation of subparagraph 115(2)(c.1), taken to the full extent, would mean that any remuneration, compensation or consideration that is received for services to be performed in Canada, regardless of where the services are actually performed, would result in the non-resident being deemed employed in Canada. This “deemed resident/factual non-resident” would be, taxable on the portion of income that is received for services performed outside of Canada, subject to the “reasonableness” of the Minister.


[75] If Mr. Nonis is fully taxable, in Canada on his salary continuation payable, subject to the Minister’s reasonable reduction, while he exclusively lives, in the US as a US resident, then all non-residents terminated with salary continuation under a single partly performed contract would be so also, despite the clear, undisputed cessation of any services “performed” in Canada because of an irrevocable departure from Canada.


c) Applying 115(2)(c.1) in this context is absurd

[76] If the Respondent’s interpretation of paragraph 115(2)(c.1) is accepted, this would foreseeably cause consequences which Parliament did not intend. The Respondent argues that the amounts received by the Appellant are captured under paragraph 115(2)(c.1). If this provision is interpreted broadly to include any remuneration, consideration or compensation, either for entering or not entering into an agreement, or for duties of an office or employment (other than in the context of the interpretation provided above), this would essentially result in any contract for some portion of services to be performed in Canada by a non-resident to trigger this provision and render a non-resident a resident to the full extent of all employment income, regardless of the extent of services the non-resident is actually providing by way of duties performed in Canada. The Respondent’s asserted interpretation of various aspects of section 115 is contrary to the general rule and scheme of the Act: to tax a non-resident to the extent such duties are performed in Canada under a contract of employment.

It’s difficult to know what got into the minds of the officials in CRA who authorized defending the assessments under appeal before the Tax Court.  To be charitable perhaps we can lay the blame at the feet of COVID-19 “cabin fever”.  In any event Justice Bocock broke the fever and introduced a touch of reason to the proceedings.