Taxation

• Author: International Law Group

William A. Dudney is a U.S. citizen with a degree in aerospace engineering. Over time, he has achieved expertise in object- oriented technology (OOT), a new and sophisticated method of developing computer systems.

A company calling itself Object Systems Group Corporation (OSG) entered into a master agreement of indefinite duration with PanCanadian Petroleum Ltd. (PanCan) to train their employees in how to use OOT to develop computer systems.

Unable to find enough Canadians qualified in OOT, OSG recruited Dudney who was then living in Texas as a contractor. The training project was to last about one year. The classes took place in PanCan facilities in Calgary which the instructors could use only for OOT training during regular working hours. PanCan had the sole discretion as to what office spaces the project could use. Retaining an office in his Houston home, Dudney had no letterhead or business cards showing his work in Calgary. After he billed them for his hours, PanCan sent Dudney's checks to his Houston bank. Dudney spent 300 days in Canada in 1994 and about 40 days in 1995. He then gave 30 days notice and left the project to return to Houston for personal reasons.

Dudney filed Canadian income tax returns for those years in which he claimed that his income was exempted from Canadian taxation based on Article XIV of the Canada-United States Income Tax Convention of 1980, T.I.A.S. No. 11087. That Article provides that: "Income derived by an individual who is a resident of a Contracting State in respect of independent personal services may be taxed in that state. Such income may also be taxed in the other Contracting State if the individual has or had a fixed base regularly available to him in that other State but only to the extent that the income is attributable to the fixed base." [emphasis supplied] Relying on Convention Article XIV, the Crown assessed a...