Citation: 2004TCC6

Date: 20040115

Docket: 2000-5077(IT)G

BETWEEN:

KENT AUSTIN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Counsel for the Appellant: Thomas McRae

Counsel for the Respondent: Andrea Jackett and Lorraine Edinboro

____________________________________________________________________

REASONS FOR JUDGMENT

(Delivered orally from the Bench at

Toronto, Ontario, on December 5, 2003)

McArthur J.

[1]      The Appellant was a CFL (Canadian Football League) football player and non-resident of Canada in the 1994 and 1995 taxation years. Upon consent, the appeal for the 1996 taxation year is allowed. The only issue is whether the Appellant's U.S. income in 1994 and 1995 is calculable on a per day basis as presented by the Minister of National Revenue or on a per game basis as submitted by the Appellant.

[2]      For the most part, the facts are not in dispute. The Appellant was a quarterback in the CFL for several teams from 1987 to 1996 inclusive. He received employment income from the B.C. Lions in 1994 in the amount of $411,640, and in 1995 in the amount of $104,697 while playing for the Toronto Argonauts. Including the pre-season training camps, the Appellant was employed in 1994 from June 1 to November 17 for 180 days and in 1995, from June 1 to October 27 for 149 days. During these years, he played three games in the United States in 1994 and four games in the United States in 1995 while with the Lions and Argonauts, respectively. The interlocking games with the U.S. teams no longer exist in the CFL.

[3]      The Respondent submits that the Appellant's employment income in 1994 should be calculated as assessed upon the following ratio: six days of 180 days at a salary of $411,460; and in 1995, eight days of 149 days at a salary of $104,697. The Respondent allocated six and eight days in 1994 and 1995, respectively, for the times when the Appellant was physically present in the U.S. while playing for the Lions and Argonauts.

[4]      The Appellant's position is that the employment income between Canada and the U.S. should be based on the ratio of games played in Canada and the U.S. reflecting the actual number of games played in Canada and those played in the U.S. during the season, versus the total number of games in the performance of the athlete's employment duties. Obviously, the dispute boils down to which one of these two fractions or equations is to be used, the time method or the gain method.

[5]      I accept the Appellant's position that the employment days he was present in the U.S. should be three days per game or nine days in 1994 and twelve days in 1995, although this makes little difference in the outcome. The base salary in the Appellant's contract with the B.C. Lions reimbursed him for games and personal appearances.

[6]      The Minister's traditional position with respect to non-resident athletes performing services in Canada is that the amount of remuneration allocated to Canada should reflect the amount of time spent in Canada, the formula being the number of days in Canada during the team season times the employment income number of days in the team season. This is particularly applicable to hockey and sports other than Canadian football.

[7]      I agree with the Appellant that the present appeal is an anomaly because the CFL no longer plays in the U.S. Secondly, the CFL contract the players must enter into is different from most other sports because the CFL contract is so one-sided in favour of the clubs. This has been developed, I believe, because of the league's general lack of funds. Paragraphs 3, 10 and 11 of the CFL contract filed in evidence read as follows:

3.          For the Player's services as a skilled football player during the term of this contract, and for his agreement not to play football, or engage in activities related to football, for any other person, firm, club or corporation during the term of this contract and for the option hereinafter set forth giving the Club the right to renew this contract and for the other undertakings of the Player herein the Club promises to pay the Player the sum of $427,500.00 CAN Dollars to be payable as follows: 100% of said sum to be divided into eighteen (18) equal instalments and paid to the Player within forty-eight (48) hours of each regular season game whenever the Club schedule permits it to be practicable. It is understood between the parties hereto that payment to the Player by the Club for League Playoff games will be made as hereinafter provided.

10.        The Club shall have the right to terminate this contract upon notice to the Player if, in the opinion of the head coach and/or general manager: (a) the Player fails at any time during the term of this contract to demonstrate sufficient skill and capacity to play football of the calibre required by the Club; (b) the Player's work or conduct in the performance of this contract is unsatisfactory; (c) where there exists a limit to the number permitted of a certain class of player and the Player, being within that class, should not be included amongst the permitted number; or (d) termination of this contract is in the best interests of the Club having regard for the competitiveness of the Club as a whole or the formation of a team with the greatest overall strength. It is agreed by both parties that the Club's head coach and/or general manager, as the case may be, shall be the sole judge(s) as to the competency and satisfaction of the Player and his services and, in particular, as to the criteria set out in sub-paragraphs (a) to (d) of this paragraph.

11.        Upon termination of this contract during the football season, the Player shall only be entitled to receive and the Club shall only be required to pay to the Player as compensation for services theretofore rendered hereunder, such portion of the total compensation for the regular season as provided in Paragraph 3 hereof; as the number of the regular season games already played bears to the total number of games scheduled for the Club for that season, and upon such termination the Club shall pay to the Player the balance of such compensation as then remains owing to the Player. Termination of this contract shall not be effective unless it is terminated in accordance with the terms and conditions contained in the Collective Agreement.

[8]      Neither Article XV of the Canada/United States Tax Convention (1980), nor subparagraph 115(1)(a)(i) of the Income Tax Act provide much guidance with respect to arriving at an allocation. To be successful, the Appellant has to establish that his approach was more reasonable or appropriate than that of the Minister.

[9]      The Appellant's position can be distinguished from the cases provided by the Respondent. The Appellant's contract provided that he would be paid only for the games played, unless he did not play because of a game injury. The contract provided no payment guarantee, which is the norm in hockey, baseball and other sports. I accept the Appellant's evidence in this regard. I do not believe that the Minister's allocation of six and eight days over 147 and 180 days, respectively, is realistic or reasonable because the Appellant was paid only for the games he played with the exceptions referred to. He was paid a token amount of approximately $400 weekly for the training camp period and I refer to Exhibit A-3. His per game payment amount far outweighed the payment for the services that are insignificant in comparison. It is not reasonable to use the Minister's ratio of days present in Canada versus the days present in the U.S. While the Appellant's method has obvious flaws, I find it is more reasonable and closer to reality than the Minister's.

[10]     The Appellant's pay was divided into 18 parts, one part for each game and, as stated, if he was cut, or did not play a game for other reasons other than injury, he did not get paid. There was no guaranteed payment as provided for in the hockey player cases referred to by the Respondent.

[11]     The Appellant is subject to a tax under section 115 of the Act on taxable income earned in Canada. He played 15 of 18 games in Canada in 1994. His Canadian income for 1994 and 1995 is to be calculated on a per game basis, 15 over 18 games of his total income in 1994 and 14 over 18 games of his total income in 1995. The allocation of income earned in the U.S. is of course three over 18 of the total amount in 1994 and four over 18 in 1995. The four or five weeks pre-season payments are incidental to the per game payment.

[12]     The law provided is of little assistance. The CFL contract has to be considered to the exclusion of the cases provided dealing with hockey contracts. As stated, Article XV in the Treaty is of little assistance. It provides, in effect, that the Appellant's income derived in the U.S. shall be taxable only in the U.S. This does not assist us in determining the allocation of income. The Appellant's counsel referred to the often-quoted statement in Gladden Estate v. the Queen, 85 DTC 5191, where Addy J. stated that an ordinary taxing statute or tax treaty must be given liberal interpretation. I have adopted this approach.

[13]     I believe it is overly restrictive to find that the Appellant, who plays three or four of 18 games in the U.S. in a one-year period, must have income calculated based on his time of six or eight days in the U.S. over the number of total days in the season. The ratio of three over 18 and four over 18 is far more realistic. It is not perfect but more reasonable.

[14]     While I am overlooking the Respondent's submission that the Appellant, if injured, would be paid under certain circumstances for not playing, this fact does not justify the extraordinary imbalance using the Minister's ratios. I was presented with the Minister's allocation method and with the Appellant's. I find the Appellant's far more reasonable and I was left with no other formula for a compromise.

[15]     The Appellant's appeals are allowed with taxed costs and the reassessments are referred back to the Minister for reconsideration and reassessment on the basis that the allocation of income earned in the U.S. by the Appellant should be determined on a per game basis for the taxation years 1994 and 1995; and the appeal for the 1996 taxation year is allowed upon consent of the parties.

Signed at Ottawa, Canada, this 15th day of January, 2004.

"C.H. McArthur"

McArthur J.

CITATION:

2004TCC6

COURT FILE NO.:

2000-5077(IT)G

STYLE OF CAUSE:

Kent Austin and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

December 4, 2003

REASONS FOR JUDGMENT BY:

The Honourable Justice C.H. McArthur

DATE OF JUDGMENT:

December 15, 2003

APPEARANCES:

Counsel for the Appellant:

Thomas McRae

Counsel for the Respondent:

Andrea Jackett and Lorraine Edinboro

COUNSEL OF RECORD:

For the Appellant:

Name:

Thomas McRae

Firm:

Shibley Righton LLP

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada