2020 QCCQ 1903, 2020 QCCQ 1903

Sanctuary c. Agence du revenu du Québec 2020 QCCQ 1903 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL “Civil Division” No.: 500-80-036264-175 DATE: May 12, 2020 ______________________________________________________________________ PRESIDING: THE HONOURABLE STÉPHANE DAVIGNON, J.C.Q. ______________________________________________________________________ BRYAN C. SANCTUARY Plaintiff v. AGENCE DU REVENU DU QUÉBEC Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Bryan C.

Sanctuary appeals from an amended notice of assessment by the Agence du revenu du Québec (the “ Agency ”) for the 2012 taxation year, arguing that he is no longer subject to income tax in Quebec because he is residing in Ontario since moving there on December 18, 2012. [ 2 ] The Agency contests the appeal and argues that according to the criteria applicable, Mr. Sanctuary must be considered a Quebec resident for tax purposes for the 2012 taxation year and that the amended assessment was established in accordance with the provisions of the law. ISSUE [ 3 ] Mr.

Sanctuary’s appeal raises just one issue, that is, whether he should be considered a resident of Quebec for the 2012 taxation year in light of the applicable provisions of the Quebec Taxation Act [1] (the “ Act ”) and the established criteria in this respect. PROCEDURAL CONTEXT [ 4 ] In 2015, the Agency realized that Mr. Sanctuary had not filed an income tax return since the 2011 taxation year and conducted an investigation into his income. On January 13, 2016, after its investigation, it issued a notice of assessment for the 2012 taxation year bearing number Q0411340E00. [2] [ 5 ] Mr.

Sanctuary filed an objection to that notice of assessment claiming that he was not subject to income tax in Quebec and that he had paid all of his taxes in his province of residence, Ontario. [ 6 ] The Agency did not accept his position and rendered its decision on August 3, 2017, [3] but on August 21, 2017, it nevertheless issued an amended notice of assessment for the 2012 taxation year bearing number Q0411340E01. [4] Relying on the federal income tax declaration he filed on May 13, 2013, it therefore reduced the income tax payable by Mr.

Sanctuary from $448,365.52 to $309,469.90. [ 7 ] That reduction was due to the waiver of penalties initially imposed for failure to file his income tax return, to the reduction of Mr. Sanctuary’s rental income from an immovable property, to the reduction of a taxable capital gain, and last, to a contribution to a registered retirement savings plan. [ 8 ] Mr. Sanctuary is appealing the Agency’s decision in that amended notice of assessment. FACTS [ 9 ] Mr. Sanctuary was born in Yorkshire, England in 1945.

Other than a short period of five years when he lived in Ontario as a child, he lived and studied mainly in Europe, where he completed a Ph.D. in chemistry. [ 10 ] In 1976, he moved to Montreal after he was hired as a professor with the Department of Chemistry at McGill University, where he taught, did research and was involved in the university’s administration until his retirement on August 31, 2019. [ 11 ] His teaching load was three to five hours a week, and the remainder of his time was mainly dedicated to his research, which he

says he could conduct outside the laboratory from any location. [ 12 ] His first marriage was in 1967 to Janette Woo, from whom he legally separated in 1995. Three children were born of their union. Ms. Woo now lives in Sweden and the three children live elsewhere in Europe. [ 13 ] His second marriage was to Rita Tza-Man Lo, from whom he divorced in 2006. [5] One child, who also lives in Europe, was born of that union. [ 14 ] He met Carolyn Ilio in 2003; they were married in Montreal on June 10, 2012, and ultimately divorced on [...], 2015. [ 15 ] Mr.

Sanctuary has one brother, who lives in Toronto, and a sister, who lives in Alberta. [ 16 ] While he was living in Montreal, he bought a number of immovable properties. On March 20, 1984, he purchased a first income property located on [street A] (the “ [street A] Property ”) with his first spouse, Ms.

Woo, whose undivided share he bought back on July 4, 1996. [6] [ 17 ] On May 18, 2004, he bought a property on Tupper Street (the “ Tupper Property ”), which became his principal residence in Montreal and which he sold on January 26, 2017. [7] [ 18 ] Last, on April 18, 2012, he bought another residential property in Dollard-des-Ormeaux (the “ Dollard-des-Ormeaux Property ”). [ 19 ] On June 7, 2012, he sold the [street A] Property for $2,600,000, which generated a taxable capital gain that the Agency later determined to be $912,883. [8] [ 20 ] After that sale, on December 18, 2012, he bought a property in North Lancaster, Ontario [9] (the “ North Lancaster Property ”), 90 km from downtown Montreal. [10] As far as Mr.

Sanctuary is concerned, that is the date of his change of residence from Quebec to Ontario. [ 21 ] Finally, on June 12, 2014, [11] he sold the Dollard-des-Ormeaux Property to Ms. Ilio after they separated. THE LAW AND THE APPLICABLE LEGAL PRINCIPLES The Act [ 22 ] Sections 7.14 , 22 , 1000 and 1014 of the Act apply to this dispute. These provisions state: 7.14 The application of this Act and the regulations is not affected by

article 77 of the Civil Code as regards the determination of whether or not a person is resident in Québec, in Canada or elsewhere 22 Every person who is an individual resident in Québec on the last day of a taxation year or a corporation having an establishment in Québec at any time in a taxation year shall pay a tax on the taxable income of the individual or the corporation, as the case may be, for that taxation year. The tax payable under

section 750 by an individual referred to in the first paragraph who carries on a business in Canada but outside Québec is equal to the proportion of the tax that would be determined under this

section but for this paragraph that the individual’s income earned in Québec is of the individual’s income earned in Québec and elsewhere, as determined by the regulations. 1000. 1.

(1) A fiscal return containing the prescribed information shall be filed with the Minister in prescribed form, without notice or demand therefor, for each taxation year in the case of a corporation, other than a corporation described in

section 1003.1, and in the case of an individual, for each taxation year (

a) for which tax under this

Part is payable or would be payable had the individual not deducted an amount in relation to a preceding taxation year and referred to in any of sections 727 to 737; (

b) in respect of which

section 42.8 applies to the individual and in which the individual performed employment duties for a regulated establishment within the meaning of

section 42.6; (

c) in which the individual has a taxable capital gain or disposes of capital property, where the individual is resident in Canada at any time in the year; ( c.1 ) at any particular time of which, the individual, as a specified trust, owns a specified immovable or is a member of a partnership that owns a specified immovable; ( c.2 ) for which, as a trust, other than an excluded trust for the year, the individual deducts an amount in computing income under paragraph a or b of

section 657; ( c.3 ) on the last day of which the individual is a trust, other than an excluded trust for the year, that is resident in Québec and at any time of which the individual owns property the total of the cost amounts of which is greater than $250,000; ( c.4 ) on the last day of which the individual is a trust, other than an excluded trust for the year, that is not resident in Québec and at any time of which the individual owns property the individual uses in the operation of a business in Québec the total of the cost amounts of which is greater than $250,000; (

d) in which the individual has a taxable capital gain (otherwise than from an excluded disposition within the meaning of

section

1003.2) or disposes of a taxable Québec property (otherwise than in such an excluded disposition), where the individual is not resident in Canada throughout the year; or (

e) at the end of which the individual’s specified balance, as defined in the first paragraph of

section 935.1 or 935.12, is a positive amount.

(2) Such return must be filed by the following persons and within the following delays: (

a) in the case of a corporation, by or on behalf of the corporation within six months from the end of its taxation year; ( b ) (paragraph repealed); (

c) in the case of a person who dies before the day following the day that would otherwise be the person’s filing-due date, by the person’s legal representatives on or before the person’s filing-due date or within six months after the day of death; (

d) in the case of a succession or a trust, by the liquidator of the succession, the executor or the trustee, within 90 days after the end of its taxation year; (

e) in the case of any other person, by that person, on or before i. 30 April of the following calendar year, ii. 15 June of the following calendar year if the person is an individual who carried on a business in the taxation year, unless the expenditures made in the course of carrying on the business were primarily the cost or capital cost of a tax shelter within the meaning assigned by

section 851.38, or if at any time in the taxation year the person is the spouse of such an individual and the person and the individual are not living apart at that time, or iii. where at any time in the taxation year the person was the spouse of an individual to whom paragraph c applies and the person and the individual were not living apart at that time, within the time specified in paragraph c; and (

f) in a case where no return has been filed under paragraphs a to e, by such person as is required by notice in writing from the Minister to file the return, within such reasonable time as the notice specifies. 1014 An assessment shall, subject to being varied or vacated on an objection, appeal or

summary appeal and subject to a reassessment, be deemed to be valid and binding notwithstanding any error, defect or omission in the assessment or in any proceeding relating thereto. Principles and criteria [ 23 ] The notion of “residence” is not defined in the Act . Its scope will vary according to the facts of each file. It must be analyzed in light of the principles and criteria set out in the case law , [12] which can be summarized as follows: 1. The determination of residence is a question of fact. 2.

A person’s residence is not necessarily the place where they spend the greatest number of days during the year; the notions of “stay” and “residence” must be distinguished. 3. From a taxation standpoint, a person is assumed to be resident somewhere at all times. 4. The failure to have a regular dwelling does not amount to no residence. A person may reside in one place, even if they frequently leave that place and even if they do not always live in the same place when they return. 5.

The determination of residence is a matter of nuance and depends on the extent to which a person concentrates their lifestyle in one place, with all that that implies for family and social relationships, and the possession of material goods. [ 24 ] A person may be resident in more than one place for income tax purposes. [13] The words residence, stay and resides must be given their ordinary meaning. [14] [ 25 ] To determine a taxpayer’s residence within the meaning of tax law, the taxpayer’s intention and the reasons for their stay abroad can be taken into account. [ 26 ] The applicable factors have been summarized as follows: [15] 1. the taxpayer’s civil status and usual lifestyle; 2. the reasons for and intended duration of the stay outside Quebec and the actual time spent; 3. the significance of the taxpayer’s residential ties with the province with reference to their dwelling place, that of his or her spouse or dependants, personal property, bank accounts and social ties compared to the residential ties outside Quebec; 4. the place of residence designated by the taxpayer in the forms and documents; 5. the frequency and length of the taxpayer’s presence in Quebec compared to the permanency of the stay outside the province; 6. an anticipated return to Quebec at the end of the stay outside.

[ 27 ] Furthermore, Revenu Québec’s

Interpretation Bulletin IMP22-3/R2 Determining the residence of an individual who has left Québec and Canada states that the most important factor to be considered in determining whether an individual who has left the province remains resident while outside is whether the individual maintains residential ties with Quebec. [ 28 ] Generally, an individual who has left Quebec continues to be resident in the province, unless the individual severed all significant residential ties with Quebec upon leaving. [ 29 ] The significant residential ties are the dwelling place or places, the spouse, and the dependants. [ 30 ] Secondary residential ties may also have some significance when looked at collectively. [ 31 ] The following are considered secondary residential ties: (

a) personal property in Quebec (

b) social ties with the province (

c) economic ties with Quebec (

d) permanent resident status or an appropriate work permit in the taxpayer’s location (

e) provincial hospitalization and medical insurance coverage (

f) a driver’s license (

g) a registered vehicle (

h) a seasonal dwelling place in Quebec or a leased dwelling place [ 32 ] Residential ties elsewhere as well as the regularity and length of visits and the anticipated return to Quebec at the end of the stay must also be considered and gauged. [ 33 ] Pursuant to

Interpretation Bulletin IMP22-3/R2, an individual who has left Quebec and intends to become a non-resident without establishing any significant residential ties elsewhere may continue to be resident if the ties he or she still has with Quebec prove to be more significant. [ 34 ] It must also be noted that the fact that an individual has established significant residential ties elsewhere does not in and of itself mean that the individual is no longer resident in Quebec. [ 35 ] The evidence adduced by Mr.

Sanctuary must be analyzed in light of the above principles to determine whether he is subject to Quebec tax laws. The burden of proof [ 36 ] The rule regarding the burden of proof in tax assessment challenges is now well established and can be summarized as follows: 1) tax assessments are presumed valid (

section 1014 of the Act ), but the taxpayer may rebut this presumption; 2) the taxpayer’s initial burden is to “demolish” the exact assumption by making a prima facie case. 3) when a taxpayer presents such evidence, the burden of proof shifts; 4) the Agency must then rebut the prima facie case and prove the assessment that had been established by presumption. [16] [ 37 ] A prima facie case is defined as sufficient evidence to establish a fact until there is evidence to the contrary, that is, it is supported by evidence which raises such a degree of probability in its favour that it must be accepted if believed by the Court unless it is rebutted or the contrary is proved. [17] [ 38 ] It is trite law that in taxation the standard of proof is the civil balance of probabilities. [18] [ 39 ] The taxpayer’s initial burden is only to demolish the exact assumption used by the Agency, that is, the facts on which the objection relies, by adducing prima facie evidence of its inaccuracy, and nothing more. [19] ANALYSIS AND DECISION [ 40 ] The legal presumption set out in

section 1014 of the Act providing that notices of assessment are deemed to be valid includes jurisdictional validity. [ 41 ] Therefore, Mr. Sanctuary has the burden of proving, at least prima facie , that his ties with Quebec were severed and that in 2012 he clearly changed living environments. [ 42 ] With respect, he has not discharged this burden. Chronology of events

[ 43 ] Mr. Sanctuary testified that he never developed a strong sense of belonging to Quebec. He says he did not really have any friends in Quebec, where he had no real contacts because his best friend, Gerry Leclair, lived in Ontario. In 2012, a few years before he officially retired, he started to think about moving there. [ 44 ] That same year, at an undetermined time, he did research on the Internet to find out how to officially become a resident of Ontario.

He understood that he had to sell his investment property in Quebec, buy a property in his new province of residence, give up his Quebec driver’s license and health insurance coverage, and finally, that the place where he was resident on December 31 determined the place where he must declare his income and be subject to the tax laws. [ 45 ] On June 7, he sold the [street A] Property and realized a sizable taxable capital gain that the Agency later established at $912,883. [ 46 ] Three days later, on June 10, he married Ms.

Ilio, whom he had started dating nine years earlier in 2003 and with whom he says he discussed his plan to move to Ontario, but to still have a pied-à-terre in Montreal by keeping the Tupper Property where Mr. Sanctuary had been living since 2004. [ 47 ] The couple’s relationship floundered even before the marriage due to Ms. Ilio’s infidelity, which Mr. Sanctuary claims to have discovered when he consulted the officiant who was to preside over the ceremony. [ 48 ] Although shaken, Mr.

Sanctuary says he nevertheless did not want to give up on the marriage and that he understood, at least in part, the reason for it since Ms. Ilio, whom he had met when she was only 22 years old, was 35 years his junior. [ 49 ] After he returned from the honeymoon, Mr. Sanctuary started looking for a property in Ontario in the fall of 2012, and submitted an offer to purchase the North Lancaster Property on November 27, 2012. [20] The house was a bungalow located on a nine- acre lot, which also included a shed to store equipment. [ 50 ] Mr.

Sanctuary claims that he established his residence there with his wife on December 18, 2012, the same day that he signed the deed of sale, for $305,000. [ 51 ] The evidence, however, does not in any way support such a claim. [ 52 ] On December 18, Mr. Sanctuary did not move any of his furniture all of which remained in the Tupper Property until 2017.

It is true that he rented a truck on December 23, 2012, but the evidence establishes that it was only to move a few pieces of used furniture, that he had bought for $4,000 from some of his mother-in-law’s friends, to North Lancaster. [21] [ 53 ] Most importantly, during his testimony at the hearing Mr. Sanctuary acknowledged that during the winter 2012-2013 the North Lancaster Property was not habitable, its heating system did not work properly and it was very cold.

In fact, major renovation work was carried in the spring and summer of 2013 to make the house habitable. [22] [ 54 ] That is not all. [ 55 ] The facts reveal that in 2012, Mr. Sanctuary and his wife were in North Lancaster only sporadically, on weekends, but their life remained in Montreal, where they both worked. After December 18, contrary to what he alleges in his appeal the Tupper Property was not at all a pied-à-terre as Mr.

Sanctuary claims but rather his main residence which he only sold in 2016. [ 56 ] The sole credit card statement that he filed during the hearing is very revealing. [23] The statement covers the period from December 23, 2012, to January 22, 2013, and establishes that Mr.

Sanctuary spent almost all of his time in Quebec, other than for a few days on the weekend when he was in Ontario and spent money on gas and expenses related to his car. [ 57 ] He was therefore in Montreal during the entire holiday period where he made all kinds of purchases, including at the pharmacy and the Société des alcools du Québec, went to restaurants, the movie theatre and engaged in other leisure activities. [ 58 ] Clearly, one of the reasons for this was that Mr. Sanctuary was still a professor with a full teaching load with the Department of Chemistry of McGill University, and his wife, Ms.

Ilio, was working full time at a Montessori daycare on Van Horne Avenue in Montreal. [ 59 ] Neither of them did the daily morning and evening commute from North Lancaster to Montreal, which was 90 kilometres away. The evidence does not establish that Ms. Ilio intended to leave her job nor, for that matter, to move to Ontario herself, quite the opposite. [ 60 ] Mr. Sanctuary testified that in December 2012, he was living with her. In February 2013, he found out that she was still having an extra-marital affair with another man, which shocked him.

Nevertheless, he claims that he continued living with her for the next 18 months, even though the relationship sometimes had its ups and downs. The couple even went on a trip in the summer of 2014. [ 61 ] He also testified that he stopped living with Ms. Ilio only at the end of that 18-month period.

Although the precise length of that period may perhaps be unclear, the fact remains that in an agreement on corollary relief and consent to a divorce judgment signed on [...], 2015, the couple declared January 28, 2014, as the official date on which they ceased living together. [ 62 ] The divorce was granted on [...], 2015, and the judgment ratified the agreement. [24] At

section 3.2, the ex-spouses claimed that their domicile was [...], Montreal, when they were living together. [ 63 ] That is not all. [ 64 ] In his motion to institute divorce proceedings dated [...], 2015, supported by an affidavit he signed before a commissioner of oaths on the same day, Mr. Sanctuary stated that he was residing and domiciled at [...], Montreal, and he stated that the marriage had broken down because they had stopped living together since January 28, 2014.

[ 65 ] In this context, the Court cannot reconcile Mr. Sanctuary’s statements in sworn legal documents with his claim that he severed his residential ties with Quebec on December 18, 2012, and therefore should not be subject to the taxation laws of this province. [ 66 ] Mr. Sanctuary’s claim is even less credible given that Ms. Ilio was not summoned and did not testify at the hearing to support his testimony that he changed his residence to Ontario. On the contrary, it is admitted that Ms. Ilio filed her 2012 tax return in Quebec, thereby acknowledging that she was a resident of this province. Mr.

Sanctuary cannot seriously suggest that they were living together elsewhere when she herself stated that she was living in Quebec. [ 67 ] In addition, the evidence reveals that he purchased the Dollard-des-Ormeaux Property in the spring of 2012 to house the parents of his spouse, Ms. Ilio, who had immigrated from the Philippines with limited resources. He even lived with them for about two weeks to convalesce following surgery at the Montreal General Hospital for a head injury he sustained from a fall in the spring of 2015.

In the Court’s view, this is clearly another indication that a residential tie was maintained. [ 68 ] In light of all of these very significant facts, the Court cannot deny that when he stated in legal documents that he was “domiciled and residing” [25] at the Tupper Property, Mr.

Sanctuary was not yet under investigation by the Agency and therefore, he likely failed to fully appreciate the tax consequences. [ 69 ] Thus, his claim that he genuinely changed residence in December 2012 seems to have been more of a reaction to receiving the first letter that the Agency sent on August 20, 2015, and the ensuing requests [26] after having been notified of the sale of an immovable property during the 2012 taxation year that generated a taxable capital gain [27] . [ 70 ] In his appeal, Mr. Sanctuary raises other more secondary grounds as evidence of a change of residence.

In the absence of any real demonstration that he actually severed his residential ties with Quebec, these few grounds, which are of limited importance, do not justify a conclusion that he has demolished the presumption of validity of the Agency’s notice of assessment. [ 71 ] For example, he argues that he applied for health insurance coverage in Ontario in 2012, which meant he was eligible as of December 1, 2012. [28] [ 72 ] The Court finds it difficult to attach much credibility to this evidence since it was only on December 18, 2012, that he finalized the purchase of the North Lancaster Property.

Furthermore, the Ontario health insurance card that he produced indicates that it was valid as of February 13, 2013. [29] In any event, the Court concludes that it is a neutral fact in this case since he continued to benefit from Quebec’s health insurance coverage until March 1, 2013. [30] [ 73 ] Mr. Sanctuary also proved that he bought an automobile in Ontario on December 22, 2012. Before that date, however, he did not have a car and that purchase became necessary so that he could travel between his residence in Montreal and North Lancaster.

Thus, it is also not a demonstration that he severed ties with Quebec. [ 74 ] He also filed his Ontario driver’s license, which was valid as of December 19, 2012. [31] On November 22, 2012, [32] however, he paid the fees to renew his Quebec driver’s license for the period ending January 25, 2014, to the Société d’assurance automobile du Québec when he renewed his Quebec health insurance card.

Again, in this case the Court cannot find that there was a clear demonstration of a severance of ties with Quebec. [ 75 ] Last, he also filed various documents for services provided and insurance addressed to him at North Lancaster, Ontario. The Court cannot subscribe enough importance to these documents for them to demolish the presumption of validity of the Agency’s notice of assessment.

For the most part, they were from service providers who delivered services mainly for the North Lancaster Property and, above all, for periods much later than 2012, most of them in 2015. [33] [ 76 ] In closing, the Court is of the view that the evidence adduced by Mr. Sanctuary does not support a conclusion that he had permanently severed his ties with Quebec, as of December 31, 2012.

He has failed to establish, at least prima facie, that on that date he ought to have been considered an Ontario resident for tax purposes, thereby demolishing the presumption of validity of notice of assessment number Q0411340E01 dated August 21, 2017, and that it should therefore be vacated. FOR THESE REASONS, THE COURT: [ 77 ] DISMISSES the appeal of the notice of assessment issued to Bryan C. Sanctuary for the 2012 taxation year bearing number Q0411340E01; [ 78 ] DECLARES that for the 2012 taxation year, Bryan C. Sanctuary is considered a resident of Quebec within the meaning of

section 22 of the Taxation Act ; [ 79 ] THE WHOLE, with legal costs. __________________________________ STÉPHANE DAVIGNON, J.C.Q.

Mtre Extra Junior Laguerre LAGUERRE FISCALISTE INC. Counsel for Bryan C. Sanctuary Mtre Normand Perreault LARIVIÈRE MEUNIER Counsel for the Agence du revenu du Québec Dates of hearing: December 5 and 6, 2019