Section 118.94 - Tax payable by non-residents (credits restricted)

The taxpayer sought to claim a medical expense tax credit in respect of 2008, in which he was a US resident. In the US, the taxpayer had a $169,767 capital loss and $61,000 of other income (interest, dividends, pensions and IRA distributions), but only $3000 of the capital loss was deductible for US taxation purposes, resulting in a US income of $58,000. He also had a $113,692 capital gain from the disposition of taxable Canadian property. The taxpayer argued that he did not have any income in the US, as the capital loss exceeded his other US-source income, so that he satisfied the requirement in s. 118.94 that taxable income earned in Canada (his taxable capital gain from the disposition of taxable Canadian property) represented all or substantially all of his income for the year.

Webb J. dismissed the taxpayer's appeal.

The determination under s. 3 of the taxpayer's income for the year was not based on whether the income was earned inside Canada or outside Canada (para. 11). As the taxpayer's taxable capital gain did not exceed his allowable capital loss for the year, there was no inclusion in his income under s. 3(b) and his only income for the year was his US source income. As no part of the taxpayer's income for the year (equal to this US source income of US$61,000 (Cdn.$65,000)) was included in the taxpayer's taxable income earned in Canada (his taxable capital gain of $57,000 from disposing of taxable Canadian property), he did not satisfy the test in s. 118.94 that all or substantially all of his income for the year was included in computing his taxable income earned in Canada (para. 24).

The taxpayer, who received approximately 80% of his income in the form of Public Service Management Insurance Plan disability payments, was found to receive "all or substantially all" of his income in such form for purposes of s. 118.94.