Treaties

After finding that s. 75(2) did not apply to attribute to the Canadian-resident taxpayer a taxable capital gain realized by an Austrian private foundation (a resident of Austria), the Court went on to find that, in any event, such application of s. 75(2) would have been precluded by the Canada-Austria Income Tax Convention. The Minister argued that Art. 13(5) of the Austrian treaty (providing that the alienation of property (other than excepted property) by a resident of Austria was taxable only in Austria) did not apply, because s. 75(2) treated the foundation's proceeds of alienation as the taxpayer's proceeds and because the taxpayer, being a Canadian resident, was not within the scope of the Convention for Canadian tax purposes.

The Court rejected this submission. There was at least one article reserving for Canada the right to attribute income earned in Austria (specifically, under the s. 91 foreign accrual property rules). There was no similar reservation in respect of s. 75(2).

Regarding the Minister's argument that Article 13 was only included "for greater certainty," Sharlow J.A. stated:

The OECD model conventions, including the Canada-Austria Income Tax Convention, generally have two purposes – the avoidance of double taxation and the prevention of fiscal evasion. Article XIII (5) of the Canada-Austria Income Tax Convention speaks only to the avoidance of double taxation. "Double taxation" may mean either juridical double taxation (for example, imposing on a person Canadian and foreign tax on the same income) or economic double taxation (for example, imposing Canadian tax on a Canadian taxpayer for the attributed income of a foreign taxpayer, where the economic burden of foreign tax on that income is also borne indirectly by the Canadian taxpayer). By definition, an attribution rule may be expected to result only in economic double taxation.

The Crown's argument requires the interpretation of a specific income tax convention to be approached on the basis of a premise that excludes, from the outset, the notion that the convention is not [sic] intended to avoid economic double taxation. That approach was rejected by Justice Miller, correctly in my view.

Malone J.A. stated (at p. 6470) that "while technical explanations attached to treaties are not binding on the Court, they may be accepted as valid guidance".

In finding that the Canada-China Convention did not apply to the Hong Kong Special Administrative Region of the People's Republic of China in light inter alia of an exchange of notes between the Canadian and Chinese governments confirming this understanding, Noël J.A. stated (at p. 5670) that:

"The commonly expressed intention of the parties is entitled to great weight and should not be ignored unless a contrary intent can be shown in either the words of the Treaty or in some other expression by the parties."

"The applicants' assertion that Article 26 of the Canada-France Income Tax Convention should receive a strict and literal interpretation should be rejected. The basis for the principle that bilateral tax convention should be given a liberal interpretation in light of their object and purpose, rather than a more strict and literal interpretation that may be applicable with respect to domestic tax legislation is twofold: first, it recognizes that a tax convention is an international agreement between two states rather than a purely domestic legislation; second, it recognizes that tax conventions are not drafted in the precise and detailed form in which domestic legislation is drafted but in a more general language ..."

Before considering the French version of Article XV of the Canada-U.S. Convention in detail, Décary J.A. referred (at p. 6867) to the principle that "where a treaty is executed in two or more languages, those of the respective contracting parties, each text is regarded as an original, and as intended to convey the same meaning as the other."

Before going on to refer to a passage contained in the U.S. Treasury Technical Explanation to the Canada-U.S. Income Tax Convention, MacGuigan J.A. stated (at p. 5456) that "from the Canadian viewpoint, it has about the same status as a Revenue Canada interpretation bulletin, of interest to a Court but not necessarily decisive of an issue".

The Court found that the U.S. Treasury Department Technical Explanation facilitated its understanding of Article 18 of the Canada-U.S. Convention.

Before referring to various extrinsic materials, Iacobucci J. stated (at p. 5396) that "reviewing the intentions of the drafters of a taxation convention is a very important element in delineating the scope of the application of that treaty" and "that, in ascertaining these goals and intentions, a court may refer to extrinsic materials which form part of the legal context (these include accepted model conventions and official commentaries thereon) without the need first to find an ambiguity before turning to such materials.

McHugh J. stated (p. 4727):

"Because the interpretation provisions of the Vienna Convention reflect the customary rules for the interpretation of treaties, it is proper to have regard to the terms of the Convention in interpreting the Agreement [between Switzerland and Australia], even though Switzerland is not a party to that Convention"

and went on to make reference to the 1977 OECD Model Convention for the Avoidance of Double Taxation in interpreting a provision of the Agreement.

"Contrary to an ordinary taxing statute a tax treaty or convention must be given a liberal interpretation with a view to implementing the true intentions of the parties". The phrase "sale or exchange" was given a liberal construction so as to include a deemed disposition.

The meaning that a term used in a Convention had at the time that the Convention was brought into the laws of Canada by statue will not be altered by subsequent amendments to Canadian domestic law unless such statutory amendments evince a clear intention to also amend the Convention as enacted (re Article II(2) of 1956 Canada-Germany convention).

The court considered an admission of an officer of the Department of National Revenue, who was examined for discovery, that a change in the standard wording of a provision of the treaties negotiated by Canada did not represent a change in policy by the Government of Canada.

Addy, J. indicated that he was "conscious" of the principle that "a liberal interpretation should be given to a tax convention".