Taxpayer’s shareholders in Canada were making its decisions rather than its director in Netherlands

Income Tax – Residence in Canada

Taxpayer limited liability corporation was incorporated in Netherlands. Taxpayer realized capital gain from disposition of its partnership interest in Ontario dairy farm operation. Minister assessed taxpayer under Part I of Income Tax Act as being resident of Canada and as non-resident of Canada under Part XIV of Act. Taxpayer’s appeal was allowed in part on basis that it was liable for tax payable under Part I as resident of Canada. Taxpayer appealed. Appeal allowed. Tax Court judge applied proper test of central management and control to determine that taxpayer was resident of Canada. Record supported Tax Court judge’s factual findings that taxpayer’s shareholders in Canada were making its decisions rather than its director in Netherlands, who was sister of one shareholder. Evidence showed director’s lack of business and farming experience, that she did paperwork to implement decisions made by shareholders, and that she did not participate in decision to dispose of farm interest or in correspondence about restructuring holdings. Minister’s acceptance of taxpayer’s Dutch residency in previous tax years did not bind Minister or Tax Court of Canada. Tax Court judge erred by determining that, because there was no evidence that taxpayer actually ceased to be resident of Netherlands, s. 128.1(1) of Act was not triggered. There was no additional requirement that taxpayer must cease being resident of its former state prior to application of deemed disposition rules.

Landbouwbedrijf Backx B.V. v. Canada (2019), 2019 CarswellNat 7728, 2019 FCA 310, M. Nadon J.A., Marianne Rivoalen J.A., and George R. Locke J.A. (F.C.A.); reversed (2018), 2018 CarswellNat 10778, 2018 CarswellNat 3735, 2018 TCC 142, 2018 CCI 142, Guy R. Smith J. (T.C.C. [General Procedure]).

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