Docket: 2024-1973(IT)I

BETWEEN:

JOHN D. NORTHCUT,

Appellant,

and

HIS MAJESTY THE KING,

Respondent.

Appeal heard on April 15 and 16, 2026, at Montreal, Quebec

Before: The Honourable Justice Dominique Lafleur

Appearances:

Counsel for the Appellant:

Jonathan Garbutt

Counsel for the Respondent:

Karine Deschênes

Renaud Fioramore-Beaulieu

JUDGMENT

In accordance with the Reasons for Judgment attached herein, the appeals of the assessments and reassessments made under the Income Tax Act (the “Act”) for the Appellant’s 2013, 2014, 2016 and 2021 taxation years are allowed, without costs, and the assessments and reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that, in computing his taxable income under subparagraph 110(1)(f)(i) of the Act, the Appellant is allowed to deduct the following additional amounts, taking into account the concessions made by the Respondent at the hearing:

• For the 2013 taxation year: $15,373;
• For the 2014 taxation year: $16,389;
• For the 2016 taxation year: $19,658; and
• For the 2021 taxation year: $18,824.

Signed this 17^th day of July 2026.

“Dominique Lafleur”

Lafleur J.

Citation: 2026 TCC 136

Date: 20260717

Docket: 2024-1973(IT)I

BETWEEN:

JOHN D. NORTHCUT,

Appellant,

and

HIS MAJESTY THE KING,

Respondent.

REASONS FOR JUDGMENT

Lafleur J.

I. OVERVIEW

[1] Mr. John D. Northcut is a retired former employee of the International Civil Aviation Organization (“ICAO”), which is an agency of the United Nations (the “UN”). At all relevant times, Mr. Northcut was a Canadian resident and a dual Canadian and United States of America (“US”) citizen.

[2] Mr. Northcut has been receiving a monthly pension amount from the United Nations Joint Staff Pension Fund (the “UNJSPF”) since his retirement from the ICAO in December 2002. He also received amounts from a US Individual Retirement Account (“IRA”). Upon his retirement, an amount equal to one-third of the value of the UNJSPF was transferred directly from the UNJSPF to the IRA.

[3] Over the course of his employment with the ICAO, Mr. Northcut was making contributions to the UNJSPF. His employer was also making contributions to the UNJSPF equal to twice the amounts contributed by Mr. Northcut.

[4] In computing his taxable income in Canada, Mr. Northcut deducted, under subparagraph 110(1)(f)(i) of the Income Tax Act (RSC 1985, c. 1 (5^th Supp)) (the “Act”), a portion of the cost of the UNJSPF (or “investment in the contract” as defined under US tax laws) which included not only his own contributions made to the UNJSPF, but also contributions made by his employer. Mr. Northcut relied on his understanding of Article XXV, entitled “Non-Discrimination”, of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, 26 September 1980, as amended (the “Treaty”).

[5] Mr. Northcut was assessed and reassessed by the Minister of National Revenue for the 2013, 2014, 2016 and 2021 taxation years (the “Minister”).

[6] The Minister disallowed part of the deductions claimed by Mr. Northcut in the computation of his taxable income under subparagraph 110(1)(f)(i) of the Act. The Minister is of the view that only the employee contributions are included in the cost of the UNJSPF and thus are deductible under subparagraph 110(1)(f)(i) of the Act. According to the Minister, the employer contributions to the UNJSPF would not be included in the cost of the UNJSPF, and therefore, are not deductible under subparagraph 110(1)(f)(i) of the Act.

[7] More specifically, the Minister assessed and reassessed Mr. Northcut as follows:

• -For the 2013 taxation year, the Minister allowed a deduction in the amount of $7,163, although Mr. Northcut claimed a deduction totalling $22,536;
• -For the 2014 taxation year: the Minister allowed a deduction in the amount of $7,652, although Mr. Northcut claimed a deduction totalling $24,041;
• -For the 2016 taxation year: the Minister allowed a deduction in the amount of $8,243, although Mr. Northcut claimed a deduction totalling $27,901;
• -For the 2021 taxation year: the Minister allowed a deduction in the amount of $9,541, although Mr. Northcut claimed a deduction totalling $27,825.

[8] During the hearing, the Respondent made concessions for the 2013, 2014 and 2016 taxation years only, allowing an additional amount as a deduction under subparagraph 110(1)(f)(i) as follows:

• -For the 2013 taxation year: $976.28;
• -For the 2014 taxation year: $1,040.80; and
• -For the 2016 taxation year: $1,869.98.

[9] At the hearing, Mr. Northcut testified. He was a very credible and reliable witness. Mr. Northcut provided detailed documentation providing relevant information to the Court (Exhibits A-1 to A-25). The Appellant also called Mr. Thomas Mistos to testify. Mr. Mistos is a former colleague of Mr. Northcut.

[10] The Respondent called Mr. Patrick Massicotte to testify. Mr. Massicotte was the Canada Revenue Agency (“CRA”) officer who was assigned Mr. Northcut’s request for mutual agreement process (the “MAP Request”) in respect of his 2013 and 2014 taxation years. Mr. Massicotte was responsible for negotiating with the US government a mutually acceptable agreement on how to tax Mr. Northcut in respect of the monthly benefits payment he received under the UNJSPF.

[11] The Respondent also filed an Affidavit (Exhibit R-2, Affidavit of Mr. Afif).

[12] At the hearing, the parties filed an Agreed Statement of Facts (Exhibit AR‑1, attached as Appendix A to these reasons).

[13] In the present appeals, the parties do not have issues with the application of US tax laws. The parties requested that the Court takes judicial notice of US tax laws, without the need to hear expert testimony. The parties have submitted a Book of Foreign Law (Exhibit AR-2) containing the applicable provisions of the US Internal Revenue Code (Title 26 of the United States Code or “IRC”), the IRS Publication 575 entitled “Pension and Annuity Income”, including Worksheet Publication 575, and the guide entitled National Taxation: Guide to national taxation of United Nations Joint Staff Pension Fund benefits, with special reference to United States income taxation (the “UN Taxation Guide”), which was prepared by the UN with the assistance of the UNJSPF. No expert witness was called at the hearing to explain US tax laws. I will come back to that issue below.

[14] Unless otherwise indicated, any statutory provision referred to in these reasons is a provision of the Act. Similarly, unless otherwise indicated, any dollar amounts mentioned in these reasons refer to legal tender in Canada.

[15] In these reasons, a reference to cost of the plan or investment in the plan means “investment in the contract” as defined under US tax laws.

II. ISSUES

[16] The Court must determine whether Mr. Northcut is allowed to claim additional amounts as deductions under subparagraph 110(1)(f)(i) with respect to contributions made to the UNJSPF as follows:

• -For the 2013 taxation year, can Mr. Northcut claim an additional deduction in the amount of $14,396.72 (given the Respondent’s concession of $976.28)?
• -For the 2014 taxation year, can Mr. Northcut claim an additional deduction in the amount of $15,348.20 (given the Respondent’s concession of $1,040.80)?
• -For the 2016 taxation year, can Mr. Northcut claim an additional deduction in the amount of $17,788.02 (given the Respondent’s concession of $1,869.98)?
• -For the 2021 taxation year, can Mr. Northcut claim an additional deduction in the amount of $18,284?

III. THE APPLICABLE LEGISLATION

[17] The relevant provisions of the Act are section 3, paragraph 56(1)(a), subparagraph 110(1)(1)(f)(i) and subsection 248(1) (definition of “superannuation and pension benefit”) which relevant parts are found in Appendix B to these Reasons for Judgment.

[18] The relevant provisions of the Treaty are Articles III:1(k), XVIII:1, XXV:1 and XXVI:1, which relevant parts are found in Appendix B to these Reasons for Judgment.

[19] The relevant provisions of the IRC are sections 61, 72(a)(1), 72(b)(1), 72(c)(1), 72(f)(1) and (2) and 911 which relevant parts are found in Appendix B to these Reasons for Judgment.

IV. DISPOSITION

[20] The appeals are allowed, without costs, and the assessments and reassessments are referred back to the Minister for reconsideration and reassessment on the basis that Mr. Northcut is allowed to deduct, in computing his taxable income under subparagraph 110(1)(f)(i), the following additional amounts, taking into account the concessions made by the Respondent at the hearing:

• -For the 2013 taxation year: $15,373;

• -For the 2014 taxation year: $16,389;

• -For the 2016 taxation year: $19,658; and

• -For the 2021 taxation year: $18,824.

V. AGREED STATEMENT OF FACTS AND TESTIMONIES

A. Agreed Statement of Facts

[21] As indicated in the Agreed Statement of Facts, the following facts were agreed to by the parties.

[22] Mr. Northcut was a long-time professional employee of the ICAO, a UN agency, based in Montreal. He worked for the ICAO from 1981 to late 2002, when he took retirement on December 1, 2002.

[23] Mr. Northcut is a US citizen and a resident of Canada and has filed Canadian income tax returns as required.

[24] While in the employment of the ICAO, Mr. Northcut made contributions from his employment income to the UNJSPF. All contributions made to the UNJSPF were funded by Mr. Northcut and his employer: one-third of these contributions were funded by Mr. Northcut from deductions from his monthly salary and two-thirds of these contributions were funded by his employer.

[25] From September 1981 to November 2002, Mr. Northcut contributed 160,757.70 USD to the UNJSPF and his employer contributed twice that amount to the UNJSPF, namely 321,515.40 USD.

[26] Mr. Northcut included his own contributions in the calculation of his gross income on his US tax returns. However, the employer contributions made on his behalf to the UNJSPF were not included in the calculation of his gross income for US tax purposes, in accordance with US tax laws.

[27] At the end of his employment, Mr. Northcut elected to transfer a lump sum in the amount of 239,514.49 USD from his UNJSPF to an IRA, this lump sum being equal to one-third of the value of his pension fund.

[28] Upon retirement, Mr. Northcut became eligible to a pension annuity payment for life under the UNJSPF beginning on December 1, 2002.

[29] All payments from the UNJSPF to its beneficiaries are initiated from New York (New York, USA).

[30] In December 2006, the Internal Revenue Service of the US Department of Treasury (“IRS”) sent a ruling letter to Mr. Northcut regarding his annual pension payment benefits from the UNJSPF and the IRA (the “IRS Letter”, attached as Appendix A to the Agreed Statement of facts).

[31] The IRS Letter confirmed that:

• - Mr. Northcut contributed an amount of 160,758 USD to the UNJSPF before he retired;

• - The amount of 160,758 USD was includible in Mr. Northcut’s gross income over the years under US tax laws;

• - His employer contributed twice that amount to the UNJSPF, which contributions were not includible in Mr. Northcut’s gross income under US tax laws;

• - For US tax purposes, Mr. Northcut must include in the calculation of his gross income, an amount equal to the difference between the annuity benefits received from the UNJSPF and a certain portion of the “investment in the contract”. “Investment in the contract” includes only the employee contributions made to the UNJSPF, but not the employer contributions;

• - Under the IRA, the IRS calculated that an amount of 53,651.25 USD was a return of Mr. Northcut’s investment, leaving a remaining investment balance of 107,106.75 USD as cost for the UNJSPF;

• - For US tax purposes, the monthly amount excluded from the gross income is equal to 411.95 USD. As indicated in the IRS Letter, this amount is excludible from gross income for each annuity payment received, until the total so excluded equaled the remaining investment amount of 128,663.06 USD, and thereafter, the annuity payment will be fully taxable.

[32] In a letter dated October 8, 2008, the CRA confirmed to Mr. Northcut that pension benefits from the UNJSPF arise in the USA (attached as Appendix B to the Agreed Statement of Facts). Further, the CRA confirmed that part of the pension benefits received by Mr. Northcut would be exempt from tax in Canada under Article XVIII of the Treaty, without indicating the amount that would be exempted.

[33] In a letter dated February 5, 2009 (attached as Appendix C to the Agreed Statement of Facts, the “2009 Letter”), the CRA informed Mr. Northcut as to the information required from a taxpayer to establish the non-taxable portion of the taxpayer’s UNJSPF payment benefits, which information would include providing to the CRA a completed copy of Worksheet A from IRS Publication 575. As indicated by the CRA, “the cost or investment in the plan and the appropriate factor to be used on Publication 575 – Worksheet A is to be established for the first year in which the taxpayer receives the annuity. Once this amount is established, it will not vary from year to year”.

[34] Furthermore, in the 2009 Letter, the CRA examined various scenarios under which a taxpayer would qualify for an exemption under subparagraph 110(1)(f)(i), two scenarios being relevant in the present appeal:

• - Under the first scenario, where a taxpayer, other than a US citizen, was a resident of Canada throughout the period contributions were made to the plan, the cost or “investment in the plan” would include both the employee contributions and the employer contributions, which would constitute the exempt portion of the pension payments;
• - However, in another scenario where a taxpayer was a resident or citizen of the US at the time contributions were made to the plan, only the employee contributions are to be considered in the cost or “investment in the plan” ; in that case, the employer contributions are not included in the cost or “investment in the plan” because the employer contributions were not included in the computation of employment income of the taxpayer for US tax purposes in the year the employment income was earned.

[35] On May 13, 2021, the CRA sent a letter to Counsel for the Appellant (attached as Appendix D to the Agreed Statement of Facts, the “MAP Letter”). The MAP Letter was in response to the MAP Request made by Mr. Northcut to address the taxation in Canada of pension benefits received under the UNJSPF for the 2013 and 2014 taxation years, which, according to Mr. Northcut, was in violation of Article XXV of the Treaty (Non-Discrimination).

[36] The MAP Letter informed Mr. Northcut that the Competent Authorities for both Canada and the US have reached an agreement under the MAP provisions of the Treaty that the taxation in Canada was in accordance with the Treaty. More specifically, both countries agreed that in determining the amount to be excluded from income under Article XVIII:1 of the Treaty, only the employee contributions were included in the cost of the plan, as determined under the relevant provisions of the IRC. Because Mr. Northcut had recovered the entire investment in the plan in previous years, both countries agreed that the taxation of the pension benefits received, without any further deduction, was taxation by Canada that was in accordance with the provisions of the Treaty.

B. Witnesses

(1) Mr. Thomas Mistos

[37] Mr. Mistos is a Canadian citizen and resident, and a Greek citizen. Mr. Mistos was never a US citizen and never held a green card in the US. He worked at ICAO for 34 years. He retired in March 2023.

[38] Mr. Mistos testified that he contributed to the UNJSFP over the years, and his employer, the ICAO, also contributed on his behalf twice the amount he had contributed.

[39] Mr. Mistos filed his 2024 T1 Income Tax Return (Exhibit A-4), which included an annex that is the “IRS Publication 575 Worksheet A Simplified Method” detailing the cost of the plan for Mr. Mistos. As he explained to the Court, the cost of the plan included both his contributions to the plan as well as his employer contributions to the plan. Hence, he can claim a portion of the cost of the plan including both his own contributions and his employer contributions as a deduction in computing his taxable income in Canada.

[40] The notice of assessment issued by the CRA to Mr. Mistos for the 2024 taxation year was also filed as evidence (Exhibit A-5).

(2) Mr. Northcut

[41] Mr. Northcut has resided in Canada since 1971. He obtained his Canadian citizenship around 1972-1973.

[42] Mr. Northcut testified that he received the following pension benefits from the UNJSPF (Exhibits A-10 and A-11), which were reported on his Canadian tax returns:

• -in the 2013 taxation year, an amount of $77,467.92;
• -in the 2014 taxation year, an amount of $78,552.48;
• -in the 2016 taxation year, an amount of $80,933.73; and
• -in the 2021 taxation year, an amount of $87,984.00.

[43] For Canadian tax purposes, Mr. Northcut claimed as a deduction in computing his taxable income under subparagraph 110(1)(f)(i), an amount of 4,946 USD for each of the 2003 to 2007 taxation years, being a portion of his employee contributions to the UNJSPF which was excluded from his gross income under US tax laws.

[44] For each of the 2008 to 2012 taxation years, in computing his taxable income for Canadian tax purposes, Mr. Northcut claimed as a deduction under subparagraph 110(1)(f)(i) an amount totalling 14,839 USD being the total of the cost of his employee contributions (4,946 USD) and his employer contributions (9,893 USD) to the UNJSPF, as he became aware of Article XXV:1 of the Treaty (Non-Discrimination).

[45] By Consent to Judgment dated June 30, 2015, and filed with the Court on July 8, 2015 (the “Consent to Judgment”), the Respondent agreed that Mr. Northcut was allowed additional deduction amounts for each of the 2008 to 2012 taxation years (Exhibit A-24, attached as Appendix C to these Reasons for Judgment). According to Mr. Northcut, the total deduction amount he was allowed to claim under subparagraph 110(1)(f)(i) for each of the 2008 to 2012 taxation years was 14,839 USD, representing both his employee contributions of 4,946 USD and the employer contributions of 9,893 USD for each year.

(3) Mr. Patrick Massicotte

[46] Mr. Massicotte, a retired senior technical advisor at the Competent Authority division with the CRA, was in charge of reviewing the MAP Request filed by Mr. Northcut (Exhibit R-1, Respondent’s Book of Documents, tab 9).

[47] Mr. Massicotte testified that the purpose of the MAP provisions of the Treaty is to allow a taxpayer who believes that there was an incorrect interpretation of the Treaty to bring the issue to the attention of the Competent Authority of Canada or the US.

[48] If a resolution is arrived at by both the Competent Authority of Canada and the Competent Authority of the US, then the resolution will be put to the taxpayer, who can then accept the result or if not, the taxpayer can pursue the matter at the CRA and at the Courts’ level.

[49] The usual process in a MAP process would include reviewing the facts of the case. Sometimes, the taxpayer will be involved to clarify the relevant facts. When the CRA officer is of the view that the facts are well established, then the taxpayer is no longer involved in the process. The MAP process will then continue at the government level until either the Competent Authorities reach a resolution or until they do not agree on a mutually agreeable resolution.

[50] The MAP Request made by Mr. Northcut covered the 2013 and 2014 taxation years, and future taxation years.

[51] In his examination of the MAP Request, Mr. Massicotte testified that he reviewed the Treaty, including the 5^th Protocol (namely the Protocol Amending the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed at Chelsea, 21 September 2007, the “Protocol”) (which came into force on December 15, 2008 and reduced the scope of Article XXV), as well as the US Treasury Department’s technical explanation to the 5^th Protocol amending the Treaty ((Technical Explanation, Protocol amending U.S.-Canada Income Tax Convention, signed 21 September 2007) (the “US Technical Explanation”)), the United States Model Income Tax Convention, and the Organisation for Economic Co-operation and Development (“OECD”) Model Tax Convention on Income and on Capital.

[52] Mr. Massicotte prepared a position paper on the MAP Request, which paper analysed the provisions of the Act and the Treaty, and which was sent to the US Competent Authority. Mr. Massicotte explained to the US Competent Authority how he viewed the Treaty to apply in Mr. Northcut’s situation.

[53] After considering Mr. Northcut’s arguments, both competent authorities concluded that the MAP Request was not justified because the taxation in Canada was in accordance with the provisions of the Treaty. More specifically, there was no discrimination under Article XXV:1 of the Treaty if Canada only allows a deduction from taxable income of an amount equal to the amount excluded from income under US tax laws (Exhibit AR-1, Agreed Statement of Facts, tab D).

[54] In reviewing the MAP Request, Mr. Massicotte testified that the first step was to examine both Canadian and US tax laws. Under the Act and the US tax laws, the provisions do not contain any text or language that imposes a condition that would be tied to forbidden grounds of discrimination on the basis of nationality, and these provisions apply equally to all citizens of all countries (provided they are subject to tax in Canada or the US).

[55] Mr. Massicotte testified that the second step in the analysis was not necessary because the first step did not show any discrimination in Mr. Northcut’s situation. However, Mr. Massicotte indicated that he tried to find a comparable situation to Mr. Northcut, which would be in a more burdensome situation than Mr. Northcut.

[56] According to Mr. Massicotte, a key factor in finding a comparable person is the liability of Mr. Northcut to tax in the US on a most comprehensive basis, since a US citizen is taxed on his worldwide income in the US. A Canadian citizen holding a green card would be a relevant person and would be a comparator because that person would be subject to US tax on a worldwide basis, like a US citizen. Since that Canadian citizen holding a green card would be taxed the same way as Mr. Northcut in applying the Treaty, Mr. Massicotte concluded that there can be no breach to Article XXV:1 of the Treaty.

[57] Further, Mr. Massicotte testified that in reviewing the MAP Request, he had accepted audit information to the effect that Mr. Northcut had used up all his employee contributions to the plan by taxation year 2012, and that he was no longer entitled to deduct any amount under Article XVIII:1 of the Treaty.

[58] Mr. Massicotte also shared with the US Competent Authority that a Consent to Judgment regarding Mr. Northcut’s 2008 to 2012 taxation years was implemented by judgment of this Court, and that, according to the Consent to Judgment, the amounts which were allowed as deductions from taxable income in Canada for Mr. Northcut totalled 3 times the amount excluded from Mr. Northcut’s gross income for US tax purposes.

VI. POSITIONS OF THE PARTIES

A. The Appellant:

(1) Article XXV:1 of the Treaty:

[59] According to the Appellant, Article XXV:1 of the Treaty should apply to allow Mr. Northcut to include in the calculation of the investment in the UNJSPF not only his own contributions made over the years, but his employer contributions. Mr. Northcut, as a US citizen but also as a Canadian citizen and resident, has a more burdensome taxation than a Canadian resident who is not a US citizen, as shown by Mr. Mistos’ testimony.

[60] As indicated in the 2009 Letter, a Canadian resident other than a US citizen is allowed to deduct under subparagraph 110(1)(f)(i), both the employee and employer contributions to the UNJSPF, whereas a US citizen or a US resident can only deduct the employee contributions.

[61] According to the Appellant, the calculation made by the Minister, based on Mr. Northcut’s US citizenship, results in a more burdensome taxation than that for a Canadian resident (other than a US citizen) in similar circumstances, and must be considered discrimination based on citizenship under Article XXV:1 of the Treaty. Further, under the Treaty, Mr. Northcut should be compared to someone like Mr. Mistos, who is a Canadian resident and was never a US citizen, and not to someone who holds a green card and would be subject to worldwide taxation in the US.

[62] As a US citizen, Mr. Northcut is taxable on his worldwide income for US tax purposes and, as a Canadian citizen residing in Canada, he is likewise taxable on his worldwide income for Canadian tax purposes.

[63] The Appellant submits that the spirit and intention of Article XXV:1 of the Treaty is to avoid a situation like Mr. Northcut’s situation. Mr. Northcut meets the requirements of Article XXV:1 of the Treaty not to be subject, as a US citizen residing in Canada, to more burdensome taxation than a Canadian citizen residing in Canada in the same circumstances.

(2) Remaining balance as “investment in the contract” and weight of the MAP agreement:

[64] According to the Appellant, Mr. Northcut had not recovered entirely the investment in the UNJSPF (including the investment in the IRA) prior to 2013, and hence, a deduction in that respect is still available under subparagraph 110(1)(f)(i) and Article XVIII:1 of the Treaty.

[65] According to the Appellant, the Consent to Judgment creates legal facts and cannot be ignored by the Respondent.

[66] By virtue of the Consent to Judgment, the Respondent agreed to treat Mr. Northcut as a Canadien citizen with respect to pension income received from the UNJSPF for Canadian tax purposes in consideration of Article XXV of the Treaty. In accordance with the Consent to Judgment, additional amounts were allowed as deductions in the calculation of Mr. Northcut’s taxable income for the 2008 to 2012 taxation years, which additional deductions totalled 2 times the employee contributions to the UNJSPF for each taxation year, representing the employer contributions to the plan.

[67] Therefore, it is not optional for the Respondent to argue in the present appeals that additional deductions allowed under the Consent to Judgment shall be considered as employee contributions to the UNJSPF.

[68] To calculate the balance of Mr. Northcut’s employee contributions to the UNJSPF, the Appellant argues that the Court should only consider Mr. Northcut’s employee contributions, namely the amount claimed as a deduction under his US tax return (4,946 USD for each year), without considering the additional deductions allowed for taxation years 2008 to 2012.

[69] The Appellant also argued that the MAP Letter was based on a faulty appreciation of the facts, as it was assumed by Mr. Massicotte that Mr. Northcut had used up all his employee contributions’ cost in the UNJSPF prior to the 2013 taxation years, which was not the case. Accordingly, because the MAP Letter was based on wrong facts, the Court should not give any weight to the MAP Letter.

B. The Respondent:

(1) Article XXV:1 of the Treaty

[70] Article XXV:1 of the Treaty has a very limited scope, and it does not apply in these appeals.

[71] According to the Respondent, there was no taxation contrary to Article XXV:1 of the Treaty because the Minister is only relying on the taxation regime established under US tax laws to determine the amount that must be excluded from taxable income in Canada under Article XVIII:1 of the Treaty and subparagraph 110(1)(f)(i).

[72] Discrimination imposed by US tax laws on US citizens is outside the scope of Article XXV:1 of the Treaty. The different tax treatment of US citizens and non-US citizens is rooted in US domestic tax laws and not in Canadian tax laws. The different tax treatment under US domestic tax laws is only incorporated by reference into Canadian tax laws because of the requirement of Article XVIII:1 of the Treaty and is not subject to Article XXV:1 of the Treaty.

[73] According to the Respondent, three requirements must be met for Article XXV:1 of the Treaty to apply:

• - The taxpayer must be a US national;
• - Canada must impose a more burdensome tax on the taxpayer;
• - As compared to tax imposed on Canadian nationals in the same circumstances.

[74] Although Mr. Northcut meets the first criteria, as he is a US citizen, the Respondent argues that the other two requirements are not met, because (i) it is not Canada that imposes a more burdensome tax, but the US under US tax laws is imposing a more burdensome tax, and (ii) Mr. Northcut is not in the same circumstances as a Canadian national.

[75] In these appeals, the amount that is exempt from Canadian taxation under Article XVIII:1 of the Treaty, by virtue of subparagraph 110(1)(f)(i), is the portion of Mr. Northcut’s pension income that would be excluded from taxable income in the US (Coblentz v. Canada, 1996 CanLII 4091 (FCA) [Coblentz] (at para 30)).

[76] Under the Act, there is no mention of nationality in paragraph 56(1)(a) nor in subparagraph 110(1)(f)(i). Accordingly, one cannot conclude that Canada is imposing a more burdensome tax on a US national, namely on Mr. Northcut.

[77] With respect to the third criteria, the Respondent relies on a decision of the US District Court for the Eastern District of Michigan (March 29, 2021, Boudali v. IRS, case no. 19-12848, [Boudali]), where the US District Court quoted with approval the authors Kuntz & Peroni (US INT’L Tax, NONDISCRIMINATION CLAUSE, C4.20):

A U.S. citizen who is not a resident of the United States and a foreign national who is not a resident of the United States are not in the same circumstances because the nonresident U.S. citizen is subject to U.S. income tax on worldwide income.

[78] The Respondent argues that the same reasoning must be applied considering Canadian perspectives.

[79] Further, the Respondent refers to the US Technical Explanation which states that whether two persons are both taxable on worldwide income is a significant circumstance for the purpose of analysing Article XXV:1 of the Treaty (at p. 42).

[80] The US Technical Explanation further states (p. 42):

This language means the United States is not obliged to apply the same taxing regime to a national of Canada who is not resident in the United States as it applies to a U.S. national who is not resident in the United States. U.S. citizens who are not resident in the United States but who are, nevertheless, subject to U.S. tax on their worldwide income are not in the same circumstances with respect to U.S. taxation as citizens of Canada who are not U.S. residents.

[81] According to the Respondent, the comparison made by the Appellant is not a proper comparison for purposes of applying Article XXV:1 of the Treaty, because Mr. Mistos is not a US citizen, and was never a US citizen and is not taxable on his worldwide income in the US.

[82] The Respondent argues that there can be no discrimination under Article XXV:1 of the Treaty, when measures are mandated or authorised by other provisions of the Treaty (OECD Model Tax Convention on Income and Capital (2010), p. C(24)-2, para 4). In these appeals, the Respondent argues that Article XVIII:1 of the Treaty expressly mandates Canada to allow a deduction from taxable income in Canada of an amount equal to the amount excluded from income in the US.

[83] As argued by the Respondent, the main purpose of the Treaty is to prevent double taxation, and in these appeals, there would be no double taxation.

[84] In these appeals, US tax laws prevent double taxation by allowing the employee contributions to be excluded from the calculation of gross income. Since the employee contributions were taxable in the year they were made, there is no mischief for Mr. Northcut. Under US tax laws, the employer contributions to the UNJSPF were not taxable when they were made but are taxable when received by Mr. Northcut.

[85] According to the IRS Letter, and as agreed to by the parties in these appeals, Mr. Northcut was allowed to exclude from the calculation of his gross income under US tax with respect to the UNJSPF an amount equal to 4,946 USD annually, representing his employee contributions only, and up to an amount totalling 107,106.75 USD.

[86] For the IRA, similar rules would apply, and Mr. Northcut would be able to exclude from the calculation of his gross income an amount up to 53,651.25 USD.

[87] The Respondent also refers to the UN Taxation Guide which provides information on the US taxation of benefits under the UNJSPF and confirms the tax consequences described above.

[88] Further, according to the Respondent, the fact that Mr. Northcut had recovered his entire investment in the plan is not relevant for purposes of applying Article XXV:1 of the Treaty, as it is not part of the analysis to be made.

(2) Remaining balance as “investment in the contract” and weight of the MAP agreement

[89] According to the Respondent, reasonable weight should be given to the conclusion reached by the Competent Authorities of Canada and the US that taxation of Mr. Northcut by Canada was not in violation of Article XXV:1 of the Treaty as detailed in the MAP Letter.

[90] To support its position, the Respondent refers to Article 31(3)(b) of the Vienna Convention of the Law of Treaties (23 May 1969) (the “Vienna Convention”) and the OECD Model Tax Convention on Income and on Capital (November 21, 2017) regarding the MAP procedure.

[91] The Respondent does not agree with the Appellant that the MAP Letter is based on a faulty appreciation of facts, as the remaining balance of “investment in the contract” was computed appropriately by audit and taken into account by the competent authorities.

[92] According to the Respondent, Mr. Northcut’s remaining balance as investment in the contract should be calculated taking into account all amounts allowed as deductions by the Minister in past years, notwithstanding the fact that the amounts allowed as deductions under subparagraph 110(1)(f)(i) exceeded the amounts excluded from gross income under Mr. Northcut’s US tax returns for taxation years 2008 to 2012.

[93] In other words, because the Respondent alleges that Mr. Northcut is only allowed to deduct employee contributions made to the plan in the computation of his taxable income, additional deductions allowed for the 2008 to 2012 taxation years in accordance with the Consent to Judgment should be considered as employee contributions, and not as employer contributions to the plan.

VII. ANALYSIS

A. US Tax Laws

(1) Judicial notice of US Tax Laws

[94] For purposes of the laws of evidence, foreign law has been characterized as fact. Therefore, it must be pleaded and proved at trial, unless the statute provides otherwise. It will usually be done by expert evidence (International Air Transport Association v. Canadian Transportation Agency, 2022 FCA 211, para 45).

[95] According to section 40 of the Canada Evidence Act (RSC 1985, c. C-5), Québec’s law of evidence applies in all proceedings in Québec over which the Parliament of Canada has legislative authority.

[96] As these appeals were heard in Montréal, Québec, the Court must apply Québec’s law of evidence.

[97] Article 2809 of the Civil Code of Québec provides that:

2809. Judicial notice may be taken of the law of other provinces or territories of Canada and of that of a foreign state, provided it has been pleaded. The court may also require that proof be made of such law; this may be done, among other means, by expert testimony or by the production of a certificate drawn up by a jurisconsult.

Where such law has not been pleaded or its content has not been established, the court applies the law in force in Québec.

[Emphasis added.]

2809. Le tribunal peut prendre connaissance d’office du droit des autres provinces ou territoires du Canada et du droit d’un État étranger, pourvu qu’il ait été allégué. Il peut aussi demander que la preuve en soit faite, laquelle peut l’être, entre autres, par le témoignage d’un expert ou par la production d’un certificat établi par un jurisconsulte.

Lorsque ce droit n’a pas été allégué ou que sa teneur n’a pas été établie, il applique le droit en vigueur au Québec.

[Mon soulignement.]

[98] The parties requested that the Court takes judicial notice of US tax laws, without hearing expert testimony. As indicated above, the parties have submitted a Book of Foreign Law (Exhibit AR-2) containing the applicable provisions of the IRC, the IRS Publication 575 entitled “Pension and Annuity Income”, including Worksheet Publication 575, and the UN Taxation Guide.

[99] In these appeals, US tax laws have been pleaded and proved at trial. Further, the parties do not take issue with the application of US tax laws in the circumstances of these appeals.

[100] Furthermore, these appeals were heard under the informal procedure of the Court, requiring the Court to deal with these appeals “as informally and expeditiously as the circumstances and consideration of fairness permit” (subsection 18.15(3) of the Tax Court of Canada Act (RSC 1985, c. T-2)).

[101] For these reasons, the Court will take judicial notice of US tax laws as they apply to the circumstances of these appeals, without relying on expert testimony.

(2) Application of US Tax Laws

[102] Being a US citizen, Mr. Northcut is subject to tax in the US on a worldwide basis and therefore, he must file income tax returns with the US on that basis, which he did (section 61 of the IRC).

[103] Under the IRC, employee contributions to the UNJSPF are includible in the gross income of the employee at the time they are contributed to the plan; the employer contributions are not includible in the gross income of the employee at the time they are made.

[104] Over the years, Mr. Northcut filed his US income tax returns following these rules.

[105] Under the IRC, pension income (or annuities), when received, is includible in the computation of gross income (section 61 of the IRC), but an amount equal to that portion of each payment that represents a return on the “investment in the contract” is excluded from gross income (sections 72(a)(1) and 72(b)(1) of the IRC).

[106] Under section 72(c)(1) of the IRC, the term “investment in the contract” is defined as “the aggregate amount of premiums or other consideration paid for the contract” minus certain amount received under the plan (which reduction is not relevant for our purposes).

[107] By virtue of the definition of the term “investment in the contract”, the employee own contributions to the UNJSPF are included in the computation of the amount of the investment in the contract.

[108] Special rules apply to employer contributions. Under section 72(f) of the IRC, employer contributions will be part of the investment in the contract but only in the following circumstances:

• -Section 72(f)(1) of the IRC: “if such amounts were includible in the gross income of the employee…; or”
• -Section 72(f)(2) of the IRC: “if such amounts had been paid directly to the employee at the time they were contributed, they would not have been includible in the gross income of the employee under the law applicable at the time of such contribution.”

[109] Section 72(f)(1) of the IRC will not apply here to allow Mr. Northcut to include the employer contributions in the computation of the investment in the contract, as Mr. Northcut did not have to include in the computation of his gross income any amount representing the employer contributions made to the UNJSPF and he did not.

[110] Further, section 72(f)(2) of the IRC does not apply if the employer contributions were made after December 31, 1962, and if the excludability from gross income would have been by reason of the application of section 911 of the IRC which deals with foreign source income exclusion. Section 911 of the IRC applies to exclude foreign source income from gross income of a US Citizen.

[111] With respect to Mr. Northcut, section 911 of the IRC would have applied to exclude the employer contributions to the UNJSPF from being included in his gross income for US tax purposes when they were made. Therefore, under section 72(f)(2) of the IRC, Mr. Northcut’s employer contributions to the UNJSPF are not included in the investment in the contract.

[112] In accordance with the above rules, Mr. Northcut’s own contributions to the UNJSPF are included in the “investment in the contract”, but not the employer contributions (sections 72(c)(1) and 72(f) of the IRC).

[113] As indicated in the IRS Letter, Mr. Northcut’s “annuity benefits are entirely includible in gross income except for that portion of each payment which represents a return of your employee contributions”. Further, as indicated in the same letter, the amount excludible remains fixed in US currency, although the amount may vary with the exchange rate with another country currency.

[114] According to the IRS Letter, the excluded monthly amount for Mr. Northcut with respect to the UNJSPF is 411.95 USD (that is, 4,946 USD annually) and would be excluded until the total amount so excluded from his gross income equaled the remaining investment amount in the contract.

[115] The UN Taxation Guide confirms that a participant is entitled to recover the participant’s own investment in the pension benefit “tax-free”, and the excess is subject to ordinary income taxation (para 13). It provides that the participant’s investment in the UNJSPF amounts to his or her own contributions in the case of participants who were US citizens or permanent residents during their employment while in the employ of the UN or other UN agency, together with the employer contributions (generally at twice the participant’s own contributions) in the case of participants who were not US citizens or permanent residents during their employment.

[116] The UN Taxation Guide (para 13) further explains why the participant’s investment is returned tax free to the participant, so as to avoid double taxation. Employee contributions made by US citizens or permanent residents of the US have a tax paid basis because they were part of the salaries which were not exempt from US taxation. Further, according to the UN Taxation Guide, contributions made by participants who were not either US citizens or permanent residents of the US together with the employer contributions have a tax-exempt basis because such amounts would have been exempt from taxation in the US.

[117] An individual who has never been a resident of the US, nor a US citizen, like Mr. Mistos, is not subject to tax in the US and does not file income tax returns in the US. For such an individual, the amount of the investment in the contract will be calculated under the same rules. Therefore, the investment in the contract with respect to the UNJSPF will include the employee contributions in accordance with section 72(c)(1) of the IRC. Further, the investment in the contract will also include the employer contributions in accordance with section 72(f)(2) of the IRC because the exception to the application of section 72(f)(2) of the IRC does not apply. Further, if the employer contributions amounts had been paid directly to such an individual at the time they were contributed, they would not have been includible in the gross income as such an individual is not subject to tax in the US.

B. Taxation of pension benefits in Canada

[118] Under section 3, the income of a taxpayer for a taxation year includes all amounts from a source inside or outside Canada, including the taxpayer’s income from an office, employment, business or property.

[119] Further, section 56 provides that, without restricting the generality of section 3, specific sources of income must be included in computing the income of a taxpayer for a taxation year. Subparagraph 56(1)(a)(i) provides that superannuation or pension benefit must be included in the computation of income.

[120] Pension benefits payable from the IRA and the UNJSPF, being “superannuation or pension benefit” (as that term is defined in subsection 248(1)), must therefore be included in the computation of income under subparagraph 56(1)(a)(i) (Cooper v. MRN, 81 DTC 40 (Tax Review Board), at para 15; and Gill v. R., 2012 TCC 302, paras 33-38).

[121] Accordingly, under these rules, Mr. Northcut, being a resident of Canada, must include in computing his income under the Act the totality of the pension benefits he receives from the IRA and the UNJSPF.

[122] Further, subparagraph 110(1)(f)(i) provides for the deduction in the computation of taxable income of any amount that is “an amount exempt from income tax in Canada because of a provision contained in a tax convention or agreement with another country that has the force of law in Canada”.

[123] In these appeals, for purposes of the deduction under subparagraph 110(1)(f)(i), the relevant provision of the Treaty is Article XVIII:1, the Treaty having the force of law in Canada (Canada-United States Tax Convention Act, 1984 (SC 1984, c. 20)).

[124] Article XVIII:1 of the Treaty allows Canada to tax pension and annuities arising in the US, like pension benefits paid from the UNJSPF and the IRA, which pension benefits arise in the US.

[125] However, Article XVIII:1 of the Treaty provides that Canada shall exempt from taxation any amount of such pension that would be excluded from taxable income in the US, if the recipient were a resident of the US.

[126] Article XVIII:1 of the Treaty reads as follows:

Article XVIII – Pensions and Annuities

1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State.

[127] The amount that is exempt from Canadian taxation under Article XVIII:1 of the Treaty, and therefore deductible under subparagraph 110(1)(f)(i), is the amount that would be excluded from taxable income in the US.

[128] This principle was confirmed by the Federal Court of Appeal in Coblentz (at para 30) while discussing the deductibility of a lump sum payment received by a Canadian resident on the winding-up of pension fund.

[129] The Court find that the same underlying principle applies in these appeals, although the benefits payments were paid monthly to Mr. Northcut.

[130] Further, in Coblentz, the Federal Court of Appeal made the following comments regarding the purpose of Article XVIII:1 of the Treaty:

As discussed earlier the purpose underlying paragraph 1 of Article XVIII is to ensure that any portion of a lump sum payment which is exempt from taxation in the U.S. remains exempt in Canada. Thus, the question to be addressed is whether any part of the lump sum received by the taxpayer would under U.S. law be excluded from taxable income had he been a resident thereof during the 1989 taxation year. That is to say, for example, does any portion of the pension represent a return of capital? . . .

[Emphasis added.]

[131] In Korfage v. R., 2016 TCC 69 (at para 13), this Court applied the same principle and stated that “[i]n light of the Federal Court of Appeal’s comments and the language of the Treaty itself, the tax-exempt amount is to be determined by reference to US law”.

[132] As discussed above, for Canadian tax purposes, the excluded amount from taxable income with respect to benefits received from the UNJSPF (including the IRA) under subparagraph 110(1)(f)(i) and Article XVIII:1 of the Treaty must be determined under US tax laws.

[133] For Mr. Northcut, the excluded amount from taxable income under subparagraph 110(1)(f)(i) and Article XVIII:1 of the Treaty is equal to the employee contributions to the UNJSPF, namely an amount equal to the investment in the contract determined under US tax laws. More specifically, the evidence has shown that the investment in the contract, being the excluded amount from gross income under US tax laws in respect of pension payment from the UNJSPF, is equal to an amount of 4,946 USD annually (see the IRS Letter; the 2009 Letter and the Agreed Statement of facts). With respect to benefit payments from the IRA, the evidence has shown that the amount excluded from gross income under US tax laws is equal to an amount of 53,651 USD in the aggregate.

[134] For an individual who has never been a resident of the US, nor a US citizen, like Mr. Mistos, as discussed above, the excluded amount from taxable income under subparagraph 110(1)(f)(i) and Article XVIII:1 of the Treaty is equal to an amount that is the investment in the contract determined under US tax laws, namely the aggregate of the employee contributions and the employer contributions to the plan.

[135] Under the provisions of the Act and considering Article XVIII:1 of the Treaty (without considering Article XXV:1 of the Treaty), Canada is therefore entitled to tax Mr. Northcut on the pension benefits he receives from the UNJSPF and the IRA, other than any portion representing the investment in the contract determined under US tax laws.

C. Article XXV:1 of the Treaty

[136] For the following reasons, the Court finds that Article XXV:1 applies in Mr. Northcut’s situation, and that Mr. Northcut faced discrimination based on citizenship (or nationality) as forbidden under Article XXV:1 of the Treaty.

[137] Therefore, Mr. Northcut should also be allowed to deduct the employer contributions to the plan in computing his taxable income under subparagraph 110(1)(f)(i), by application of Articles XVIII:1 and XXV:1 of the Treaty, in addition to the employee contributions.

[138] If such deductions were not allowed, Mr. Northcut would face a more burdensome taxation in Canada than a Canadian citizen in the same circumstances, and hence, that would result in discrimination based on citizenship which is forbidden under Article XXV:1 of the Treaty.

[139] The Court accepts that, for purposes of this analysis, the relevant comparable person would be someone like Mr. Mistos, being a resident of Canada and a dual Canadian and Greek citizen, but who was never a US citizen and never held a US green card, and who is taxable in Canada on his worldwide income. That individual would be permitted to deduct both his employee and employer contributions to the UNJSPF in computing his taxable income in Canada under subparagraph 110(1)(f)(i), relying on Article XVIII:1 of the Treaty.

[140] The Respondent’s position cannot be accepted by the Court, as the Respondent’s analysis focused on US perspectives, but the analysis in these appeals must be done focusing on Canadian perspectives, as the Court will explain below, and keeping in mind the principles of treaty interpretation.

(1) Principles of Treaty Interpretation

[141] The Supreme Court of Canada stated that “[i]n interpreting a treaty, the paramount goal is to find the meaning of the words in question. This process involves looking to the language used and the intentions of the parties” (Crown Forest Industries Ltd. v. Canada, 1995 CanLII 103 (SCC), [1995] 2 S.C.R. 802 [Crown Forest], at para 22).

[142] In the same decision (at para 23), the Supreme Court stated:

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. As noted by Addy J. in J. N. Gladden Estate v. The Queen, 1985 CanLII 6138 (FCTTD), [1985] 1 C.T.C. 163 (F.C.T.D.), at pp. 166-67:

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. A literal or legalistic interpretation must be avoided when the basic object of the treaty might be defeated or frustrated in so far as the particular item under consideration is concerned. [Emphasis added.]

[143] More recently, in Canada v. Alta Energy Luxembourg SARL, 2021 SCC 49 (para 37), the Supreme Court of Canada reaffirmed the approach to treaty interpretation established in Crown Forest as follows:

…the methodology prescribed [for interpreting treaties] is not radically different from the modern principle applicable to domestic statutes in Canada — that is, one must consider the ordinary meaning of the text in its context and in light of its purpose ... However, unlike statutes, treaties must be interpreted ‘with a view to implementing the true intentions of the parties’... The national self-interest of each contracting state must be reconciled in the interpretive process in order to give full effect to the bargain codified by the treaty…

[144] In Black v. the Queen, 2014 TCC 12 (para 22), the Court also confirmed that in interpreting a treaty and its interaction with the Act, a liberal and purposive approach must be taken, not a mechanical approach, and further added that the Court must look at the plain language of the treaty and to the intent of the parties.

[145] As indicated by the Supreme Court of Canada in Crown Forest, in ascertaining the goals and intentions in respect of an article of a treaty, the Court may refer to extrinsic materials which form part of the legal context, namely model convention and official commentaries thereon (para 44).

[146] Courts have also considered statutes that govern treaty interpretation, such as Article 31(1) of the Vienna Convention, which echoes the Crown Forest approach to treaty interpretation.

[147] Further, Article 31(3)(b) of the Vienna Convention states that “[t]here shall be taken into account, together with the context: …(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation…”

(2) Remaining balance as “investment in the contract” and weight of the MAP agreement

[148] For the following reasons, the Court finds that very limited weight should be given to the MAP agreement reached between the Government of Canada and the US with respect to the taxation of Mr. Northcut, as indicated in the MAP Letter.

[149] By virtue of Article 31(3)(b) of the Vienna Convention, the Court agrees that, in general, it should take into consideration a mutual agreement in considering the matters under appeal, because a mutual agreement constitutes a “subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation”.

[150] Further, the Court recognized that the OECD Model Tax Convention on Income and on Capital regarding the MAP procedure (Article 25), although dated November 21, 2017, indicates that a Court is allowed to take account of such mutual agreement reached by two countries.

[151] However, in these appeals, because the MAP agreement was based on a faulty appreciation of the facts, the Court agrees with the Appellant that the MAP agreement should be given very limited weight by the Court.

[152] As acknowledged by Mr. Massicotte, the US government was advised that Mr. Northcut had no remaining balance of investment in the plan by the end of taxation year 2012.

[153] However, even if we were to consider that only the employee contributions to the plan are included in the computation of the investment in the contract, Mr. Northcut would still have a remaining balance of investment in the plan at the beginning of 2013, which information was not provided to the US Competent Authority.

[154] The evidence showed that Mr. Northcut claimed an amount of 4,946 USD as a deduction under subparagraph 110(1)(f)(i) for taxation years 2003 to 2007, which same amount was excluded from the computation of his gross income under US tax rules.

[155] However, for the 2008 to 2012 taxation years, Mr. Northcut claimed not only an amount of 4,946 USD representing the employee contributions excluded from the computation of his gross income under US tax laws, but an amount equal to twice that amount representing the employer contributions.

[156] In these appeals, the Respondent takes the view that for taxation years 2008 to 2012, because only employee contributions should have been allowed as a deduction under subparagraph 110(1)(f)(i), in computing the remaining balance of Mr. Northcut’s deduction entitlement for future years, the Court should consider that the increased amounts allowed as deductions for taxation years 2008 to 2012 represent employee contributions, and not employer contributions, and should therefore be considered recovered in calculating Mr. Northcut’s deduction entitlement.

[157] Further, the Respondent argues that the Consent to Judgment only refers to figures and the Court should not infer that employer contributions were allowed as a deduction under subparagraph 110(1)(f)(i).

[158] For the following reasons, the Court does not agree with the Respondent. The Respondent’s arguments have no merit and should be rejected. The Court agrees with the Appellant that if the Court was to accept the Respondent’s view, it would undo or undermine the effect of the Consent to Judgment.

[159] Firstly, Mr. Northcut credible testimony established that for taxation years 2008 to 2012, he claimed as a deduction, under subparagraph 110(1)(f)(i) and Article XVIII:1 of the Treaty in respect of the UNJSPF, both the employee contributions (4,946 USD) as well as the employer contributions representing twice that amount, that is 9,892 USD, for a total of 14,839 USD (Exhibit A-16). Further, with respect to the IRA, Mr. Northcut did not receive any amount in 2009 and 2010, but only in 2008, 2011 and 2012; for 2011 and 2012, in addition to the employee contributions, he claimed additional deductions equal to twice the amount of the employee contributions (Exhibit A-16).

[160] At paragraph 10b) of the Reply, the Respondent admitted that the revised exempt amounts claimed by Mr. Northcut in respect of the 2008 to 2012 taxation years included amounts in respect of contributions made by both Mr. Northcut and his employer to the UNJSPF, confirming Mr. Northcut’s credible testimony.

[161] Further, I find that the Respondent’s arguments run afoul of the long-standing principle that the Minister can only settle on a principled basis, which means that to be valid, a settlement agreement must be defensible on the facts and the law (Galway v. MNR, 1974 CanLII 2465 (FCA) [Galway] and more recently, CIBC World Markets Inc. v. Canada, 2012 FCA 3 [CIBC], paras 20-28)).

[162] The Federal Court of Appeal has long held that the Minister cannot be bound by a compromise settlement, that is an arbitrary compromise on the issues or where the quantum does not reflect the application of the law to the facts as the Minister finds them.

[163] In CIBC, the Federal Court of Appeal stated that it was bound by the principle enunciated in Galway:

[22] This Court is bound by its decision in Galway v. Minister of National Revenue, 1974 CanLII 2465 (FCTAD), [1974] 1 F.C. 600 (C.A.). In that decision, Jackett C.J., writing for the unanimous Court, stated (at page 602) that “the Minister has a statutory duty to assess the amount of tax payable on the [facts] as he finds them in accordance with the law as he understands it.” In his view, “it follows that he cannot assess for some amount designed to implement a compromise settlement.” The Minister is obligated to assess “on the facts in accordance with the law and not to implement a compromise settlement.” …

[23] More recently, this Court reaffirmed Galway in Harris v. Canada, 2000 CanLII 15738 (FCTAD), [2000] 4 F.C. 37 (C.A.). Sexton J.A., writing for the unanimous Court, stated (at paragraph 37) that “the Minister of National Revenue is limited to making decisions based solely on considerations arising from the Act itself” and cannot make “deals” divorced from those considerations. …

[164] The only possible interpretation of the Consent to Judgment is that for taxation years 2008 to 2012, Mr. Northcut was entitled to deduct an amount in respect of the employer contributions to the plan, as well as his employee contributions to the plan.

[165] One of the issues in dispute in the 2008 to 2012 taxation years was whether Article XXV:1 of the Treaty applied to entitle Mr. Northcut to deduct his employer contributions to the plan. Given the application of the Galway principle, the parties must have settled on a principled basis, that is the settlement must have been reached on the facts in accordance with the Act as applicable to these facts.

[166] Although the Consent to Judgment does not specify which portions of Mr. Northcut’s allowed deductions were in respect of his employee and/or his employer contributions to the plan, it explicitly referenced Article XXV of the Treaty as follows:

1. The Appellant is a dual-citizen of the United States of America (“US”) and Canada;

2. To treat the Appellant as a Canadian Citizen with respect to pension income received under the United Nations Joint Staff Pension Fund (“UNJSPF”) for Canadian Income Tax purposes in consideration of Article XXV of the Canada-US Income Tax Convention, as follows:

a) For the 2008 taxation year, the Appellant is entitled to additional deductions of $10,547 totalling no more than $18,126;

b) For the 2009 taxation year, the Appellant is entitled to additional deductions of $11,298 totalling no more than $17,781;

c) For the 2010 taxation year, the Appellant is entitled to additional deductions of $10,190 totalling no more than $16,037;

d) For the 2011 taxation year, the Appellant is entitled to additional deductions of $11,270 totalling no more than $16,884;

e) For the 2012 taxation year, the Appellant is entitled to additional deductions of $14,056 totalling no more than $22,001…

[167] The reference to Article XXV of the Treaty in the Consent to Judgment and the fact that Mr. Northcut was allowed all deductions he claimed necessarily imply that that he must have been allowed to make deductions in respect of his employer’s contributions, as well as his employee contributions. There exists no other legal basis that would have entitled Mr. Northcut to the total deduction amounts he claimed in the 2008 to 2012 taxation years.

[168] As indicated in the case law, the amount to be excluded under Article XVIII:1 of the Treaty is determined under US tax laws. The amount excluded under US tax laws in respect of Mr. Northcut is an amount equal to his investment in the contract, that is an amount totalling his employee contributions to the plan. The Minister must have been of the view that Article XXV of the Treaty was applicable to allow additional deductions under subparagraph 110(1)(f)(i). Hence, if an amount can be deducted under Article XVIII:1, it is either an amount equal to the employee contributions to the plan, or an amount totaling the employee and employer contributions; it can never be 3 times the employee contributions in the same taxation year.

[169] For all these reasons, the Court finds that at the beginning of 2013, the remaining employee contributions cost included in the computation of investment in the plan for Mr. Northcut was equal to 57,646.75 USD in respect of the UNJSPF (107,106.75 USD – (10 X 4,946 USD)) and was equal to 41,146.25 USD in respect of the IRA (53,651.25 USD – (4,370 USD + 1,949 USD + 1,943 USD + 1,474 USD + 524 USD + 2,245 USD) (Exhibit A-16).

(3) Application of Article XXV:1 of the Treaty

[170] Article XXV:1 of the Treaty reads as follows:

Article XXV – Non-Discrimination

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, particularly with respect to taxation on worldwide income, are or may be subjected. This provision shall also apply to individuals who are not residents of one or both of the Contracting States.

[171] The term “nationals” is defined in Article III:1(k) of the Treaty as meaning “(i) any individual possessing the citizenship or nationality of that State; and (ii) any legal person, partnership or association deriving its status as such from the laws in force in that State”.

[172] As mentioned above, the Respondent argues that three requirements must be met for Article XXV:1 of the Treaty to apply, one being that Mr. Northcut must be a US citizen, which requirement is met and is not at issue.

[173] As for the other two requirements, the Respondent argues that they were not met because Canada did not impose a more burdensome tax on Mr. Northcut as compared to the tax imposed on Canadian nationals in the same circumstances.

[174] The Court does not agree with the Respondent’s position, as the evidence showed that Canada is imposing more tax on Mr. Northcut than on a Canadian national in the same circumstances, namely an individual like Mr. Mistos, who has never been a resident of the US, nor a US citizen.

[175] The Court agrees with the Appellant that the analysis under Article XXV:1 of the Treaty should be comparing Mr. Northcut to someone like Mr. Mistos who is taxed in Canada on a worldwide basis, as is Mr. Northcut. The analysis under Article XXV:1 should not be comparing Mr. Northcut to a Canadian national holding a green card in the US, as alleged by the Respondent. The analysis should be focused on Canadian perspectives, and not on US perspectives.

[176] The Respondent focused on US tax laws, arguing that it is because of the application of US tax laws that Mr. Northcut has a more burdensome tax in Canada. Therefore, Canada could not be seen as discriminating against Mr. Northcut compared to other Canadian nationals under the same circumstances. In other words, the Respondent argues that the different tax treatment of US citizens and non-US citizens is rooted in US domestic tax laws and not in Canadian tax laws. Further, according to the Respondent, the different tax treatment under US domestic tax laws is only incorporated by reference into Canadian tax laws because of the requirement of Article XVIII:1 of the Treaty. Therefore, the Respondent argues that Article XXV:1 of the Treaty does not apply.

[177] For the following reasons, the Court does not agree with the Respondent’s arguments. While the Act incorporates US domestic tax laws by reference (Article XVIII:1 of the Treaty and subparagraph 110(1)(f)(i)), Canada is imposing a more burdensome taxation on a US national, namely Mr. Northcut. Here, the evidence showed that Mr. Northcut is also a Canadian citizen since 1971, and therefore, a Canadian national as per the Treaty.

[178] Paraphrasing Article XXV:1 of the Treaty, Mr. Northcut, as a US citizen, shall not be subjected in Canada to any taxation that is more burdensome than the taxation to which Canadian citizens in the same circumstances are or may be subjected.

[179] Because both Mr. Northcut and Mr. Mistos are taxed on a worldwide basis in Canada, they are under the same circumstances as required under Article XXV:1 of the Treaty.

[180] Hence, on a plain reading of Article XXV:1 of the Treaty, the Court finds that Mr. Northcut is facing discrimination regarding the taxation in Canada of pension benefits received under the UNJSPF (including the IRA), as he is subject to a more burdensome taxation in Canada than a Canadian citizen in the same circumstances. As indicated above, Mr. Northcut cannot deduct the employer contributions made to the plan under subparagraph 110(1)(f)(i), since the employer contributions are not included in computing the investment in the contract under US tax laws. However, an individual like Mr. Mistos, who is not a US citizen and has never held a US green card, can deduct both the employee and employer contributions to the plan in computing taxable income, because the investment in the contract includes both the employee and the employer contributions to the plan.

[181] The Court must now determine whether that interpretation of Article XXV:1 is in accordance with the true intention of the parties to the Treaty, as evidenced by extrinsic documents like the US Technical Explanation and the OECD Model Tax Convention on Income and Capital.

[182] The Respondent argues that a non-dual Canadian citizen is not in the same circumstance as a Canadian-US dual citizen, because exposure to taxation on worldwide income in the US is a relevant “circumstance” for the purposes of Article XXV:1 of the Treaty. In support of its position, the Respondent refers to the US Technical Explanation dealing with paragraph 1 of Article XXV:1 which states that:

Whether or not the two persons are both taxable on worldwide income is a significant circumstance for this purpose. For this reason, paragraph 1 specifically refers to taxation or any requirement connected therewith, particularly with respect to taxation on worldwide income, as relevant circumstances. This language means that the United States is not obliged to apply the same taxing regime to a national of Canada who is not resident in the United States as it applies to a U.S. national who is not resident in the United States. U.S. citizens who are not resident in the United States but who are, nevertheless, subject to U.S. tax on their worldwide income are not in the same circumstances with respect to U.S. taxation as citizens of Canada who are not U.S. residents. Thus, for example, Article XXV would not entitle a national of Canada residing in a third country to taxation at graduated rates on U.S.-source dividends or other investment income that applies to a U.S. citizen residing in the same third country.

[Emphasis added.]

[183] Considering these comments from the US treasury, the Respondent submits that the relevant comparison for Mr. Northcut, for the purposes of applying Article XXV:1 of the Treaty, is a Canadian citizen who is resident of Canada, and who holds a US green card. Such a person would be a Canadian national under the Treaty but would be subject to taxation on worldwide income in the US. Because this person would not be entitled to deduct his employer contributions under subparagraph 110(1)(f)(i) in computing taxable income in Canada, that shows that Mr. Northcut does not face discrimination based on nationality and therefore, Article XXV:1 of the Treaty is not engaged.

[184] In its argument, the Respondent asked the Court to apply these comments using Canada’s perspectives.

[185] The Court fails to see how these comments found in the US Technical Explanation would be relevant to these appeals. The example described therein refers to advantages allowed to US citizens on US-source income which would not be available to nationals of Canada who are not US citizens. Applying the same reasoning using Canadian perspectives, an example would be advantages in Canada allowed to a Canadian national which would not be available to a national of the US. In these appeals, Mr. Northcut is a national of both Canada and the US and should not suffer discrimination as compared to a national of Canada, as Mr. Northcut is also a national of Canada.

[186] The Respondent also refers to the decision of Boudali to support its position regarding comparable circumstances. In Boudali, the US District Court quoted with approval the authors Kuntz & Peroni (US INT’L Tax, NONDISCRIMINATION CLAUSE, C4.20):

A U.S. citizen who is not a resident of the United States and a foreign national who is not a resident of the United States are not in the same circumstances because the nonresident U.S. citizen is subject to U.S. income tax on worldwide income.

[187] The issue in these appeals is to determine whether Canada is allegedly committing discrimination on Mr. Northcut, a US national who is also a Canadian national resident of Canada, as compared to another Canadian national, who is taxable in Canada on a worldwide basis. These two persons will meet the requirement of Article XXV:1 of the Treaty, as to whether they are in the same circumstances, because they would both be taxable in Canada on a worldwide basis.

[188] As mentioned above, the Court does not agree with the Respondent’s position as the Respondent is focusing on US perspectives. To determine whether Mr. Northcut faces discrimination in Canada, the Court must look at an individual like Mr. Mistos who is taxable on a worldwide basis in Canada, like Mr. Northcut, and who is entitled to deduct both the employee and the employer contributions made to the plan in computing taxable income for Canadian tax purposes. The comments relied upon by the Respondent would be applicable if one was to determine whether a person is facing discrimination in the US; in the present appeals, the Court must determine whether Mr. Northcut, both a US and a Canadian citizen, suffers discrimination in Canada because of his US citizenship. The Court finds that he does.

[189] Commentaries found under Article 24 of the OECD Model Tax Convention on Income and on Capital (dated July 22, 2010, and July 15, 2014) dealing with non-discrimination must also be considered in this analysis.

[190] The OECD Model Tax Convention on Income and on Capital states that Article 24 (non-discrimination clause) “establishes the principle that for purposes of taxation discrimination on the grounds of nationality is forbidden, and that, subject to reciprocity, the nationals of a Contracting State may not be less favourably treated in the other Contracting State than nationals of the latter State in the same circumstances” (p. C(24)-2, para 5).

[191] Further, the OECD Model Tax Convention on Income and on Capital provides that “the underlying question is whether two persons who are residents of the same State are being treated differently solely by reason of having a different nationality” (p. C(24)-3, para 8).

[192] The Court finds that, in accordance with these comments from the OECD, Mr. Northcut is facing discrimination because Mr. Northcut, as compared to Mr. Mistos, both being resident in the same country (Canada), is being treated differently because Mr. Northcut is a US citizen (and also a Canadian citizen) and Mr. Mistos is a Canadian citizen, but not a US citizen.

[193] The Respondent further argues that the OECD Model Tax Convention on Income and on Capital stipulates that Article XXV:1 of the Treaty cannot apply to the outcome that arises from the application of another provision of the Treaty. In these appeals, the Respondent argues that the difference between the taxation of Mr. Northcut and someone like Mr. Mistos is the result of the application of Article XVIII:1 of the Treaty, which cannot violate Article XXV:1 of the Treaty.

[194] More specifically, the OECD Model Tax Convention on Income and on Capital states that “measures that are mandated or expressly authorized by the provisions of these Articles cannot be considered to violate the provisions of the Article even if they only apply, for example, as regards payments to non-residents” (p. C(24)-2, para 4).

[195] Article XVIII:1 of the Treaty provides that Canada may tax pension benefits arising in the US, and Canada must exclude from taxation in Canada the same amount that is excluded under US tax laws. Although Article XVIII:1 of the Treaty allows Canada to tax pension benefits arising in the US, it does not expressly require Canada to tax Mr. Northcut on his employer contributions. As such, it does not dictate how Canada must treat employer contributions made to the UNJSPF. If the Court was to accept the Respondent’s arguments, it would render Article XXV:1 of the Treaty devoid of any substance in these circumstances.

[196] Finally, the Court agrees that discrimination based on nationality is not explicit in the provisions of the Act applicable in these appeals (namely section 3, paragraph 56(1)(a) and subparagraph 110(1)(f)(i)) as seen from a plain reading of these provisions. However, the Court does not agree with the Respondent’s position that Article XXV:1 of the Treaty does not apply to a situation where the result in a specific case comes from the combination of different tax laws of different jurisdictions, as in the case of Mr. Northcut, the rational being that one jurisdiction cannot control tax laws of another jurisdiction. The Respondent’s argument focused again on US perspectives, but the Court must determine whether Mr. Northcut faces discrimination in Canada, not in the US.

[197] For all these reasons, a liberal interpretation of Article XXV:1 of the Treaty, with a view to implementing the true intentions of the parties, brings the Court to conclude that Article XXV:1 of the Treaty is applicable in the circumstances of these appeals. The Court finds that Mr. Northcut is facing discrimination in Canada based on nationality in respect of the taxation of the pension benefits he receives from the UNJSPF (including the IRA). Therefore, by application of Article XXV:1 of the Treaty, Mr. Northcut should be allowed to deduct, in the computation of his taxable income in Canada under subparagraph 110(1)(f)(i), not only the employee contributions but also the employer contributions made to the UNJSPF over the years, as he claimed for the 2013, 2014, 2016 and 2021 taxation years.

Signed this 17^th day of July 2026.

“Dominique Lafleur”

Lafleur J.

APPENDIX A

APPENDIX B

Income Tax Act

3 The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:

(a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,

(b) …

56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(a) any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

(i) a superannuation or pension benefit including, without limiting the generality of the foregoing,

110(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable

(f) any social assistance payment made on the basis of a means, needs or income test and included because of clause 56(1)(a)(i)(A) or paragraph 56(1)(u) in computing the taxpayer’s income for the year or any amount that is

(i) an amount exempt from income tax in Canada because of a provision contained in a tax convention or agreement with another country that has the force of law in Canada

248(1) In this Act,

superannuation or pension benefit includes any amount received out of or under a superannuation or pension fund or plan (including, except for the purposes of subparagraph 56(1)(a)(i), a pooled registered pension plan) and, without restricting the generality of the foregoing, includes any payment made to a beneficiary under the fund or plan or to an employer or former employer of the beneficiary under the fund or plan

(a) in accordance with the terms of the fund or plan,

(b) resulting from an amendment to or modification of the fund or plan, or

(c) resulting from the termination of the fund or plan; (prestation de retraite ou de pension)

Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital

Article III – General Definitions

1. For the purposes of this Convention, unless the context otherwise requires:

(k) the term “national” of a Contracting State means:

(i) any individual possessing the citizenship or nationality of that State; and

(ii) any legal person, partnership or association deriving its status as such from the laws in force in that State.

Article XVIII – Pensions and Annuities

1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State.

Article XXV – Non-Discrimination

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith that is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, particularly with respect to taxation on worldwide income, are or may be subjected. This provision shall also apply to individuals who are not residents or one or both of the Contracting States.

Article XXVI – Mutual Agreement Procedure

1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case in writing to the competent authority of the Contracting State of which he is a resident or, if he is a resident of neither Contracting State, of which he is a national.

2. The competent authority of the Contracting State to which the case has been presented shall endeavor, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Except where the provisions of Article IX (Related Persons) apply, any agreement reached shall be implemented notwithstanding any time or other procedural limitations in the domestic law of the Contracting States, provided that the competent authority of the other Contracting State has received notification that such a case exists within six years from the end of the taxable year to which the case relates.

3. The competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. In particular, the competent authorities of the Contracting States may agree:

(a) to the same attribution of profits to a resident of a Contracting State and its permanent establishment situated in the other Contracting State;

(b) to the same allocation of income, deductions, credits or allowances between persons;

(c) to the same determination of the source, and the same characterization, of particular items of income;

(d) to a common meaning of any term used in the Convention;

(e) to the elimination of double taxation with respect to income distributed by an estate or trust;

(f) to the elimination of double taxation with respect to a partnership;

(g) to provide relief from double taxation resulting from the application of the estate tax imposed by the United States or the Canadian tax as a result of a distribution or disposition of property by a trust that is a qualified domestic trust within the meaning of section 2056A of the Internal Revenue Code, or is described in subsection 70(6) of the Income Tax Act or is treated as such under paragraph 5 of Article XXIX B (Taxes Imposed by Reason of Death), in cases where no relief is otherwise available; or

(h) to increases in any dollar amounts referred to in the Convention to reflect monetary or economic developments.

They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

Title 26 of the United States Code – Internal Revenue Code

61(a) Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;

(2) Gross income derived from business;

(3) Gains derived from dealings in property;

(4) Interest;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Annuities;

(9) Income from life insurance and endowment contracts;

(10) Pensions;

(11) Income from discharge of indebtedness;

(12) Distributive share of partnership gross income;

(13) Income in respect of a decedent; and

(14) Income from an interest in an estate or trust.

(b) For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).

72(a)(1) Except as otherwise provided in this chapter, gross income includes any amount received as an annuity (whether for a period certain or during one or more lives) under an annuity, endowment, or life insurance contract.

72(b)(1) Gross income does not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date).

72(c)(1) For purposes of subsection (b), the investment in the contract as of the annuity starting date is—

(A) the aggregate amount of premiums or other consideration paid for the contract, minus

(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.

72(f) In computing, for purposes of subsection (c)(1)(A), the aggregate amount of premiums or other consideration paid for the contract, and for purposes of subsection (e)(6), the aggregate premiums or other consideration paid, amounts contributed by the employer shall be included, but only to the extent that—

(1) such amounts were includible in the gross income of the employee under this subtitle or prior income tax laws; or

(2) if such amounts had been paid directly to the employee at the time they were contributed, they would not have been includible in the gross income of the employee under the law applicable at the time of such contribution.

Paragraph (2) shall not apply to amounts which were contributed by the employer after December 31, 1962, and which would not have been includible in the gross income of the employee by reason of the application of section 911 if such amounts had been paid directly to the employee at the time of contribution. […]

911(a) At the election of a qualified individual (made separately with respect to paragraphs (1) and (2)), there shall be excluded from the gross income of such individual, and exempt from taxation under this subtitle, for any taxable year—

(1) the foreign earned income of such individual, and

(2) […]

911(b)(1) For purposes of this section—

(A) The term “foreign earned income” with respect to any individual means the amount received by such individual from sources within a foreign country or countries which constitute earned income attributable to services performed by such individual during the period described in subparagraph (A) or (B) of subsection (d)(1), whichever is applicable.

(B) The foreign earned income for an individual shall not include amounts—

(i) received as a pension or annuity,

(ii) paid by the United States or an agency thereof to an employee of the United States or an agency thereof,

(iii) included in gross income by reason of section 402(b) (relating to taxability of beneficiary of nonexempt trust) or section 403(c) (relating to taxability of beneficiary under a nonqualified annuity), or

(iv) received after the close of the taxable year following the taxable year in which the services to which the amounts are attributable are performed.

911(b)(2)(A) The foreign earned income of an individual which may be excluded under subsection (a)(1) for any taxable year shall not exceed the amount of foreign earned income computed on a daily basis at an annual rate equal to the exclusion amount for the calendar year in which such taxable year begins.

(B) For purposes of applying subparagraph (A), amounts received shall be considered received in the taxable year in which the services to which the amounts are attributable are performed.

(C) In applying subparagraph (A) with respect to amounts received from services performed by a husband or wife which are community income under community property laws applicable to such income, the aggregate amount which may be excludable from the gross income of such husband and wife under subsection (a)(1) for any taxable year shall equal the amount which would be so excludable if such amounts did not constitute community income.

(D)(i) The exclusion amount for any calendar year is $80,000.

(ii) In the case of any taxable year beginning in a calendar year after 2005, the $80,000 amount in clause (i) shall be increased by an amount equal to the product of—

(I) such dollar amount, and

(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2004” for “2016” in subparagraph (A)(ii) thereof.

If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.

911(d) For purposes of this section—

(1) The term “qualified individual” means an individual whose tax home is in a foreign country and who is—

(A) a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or

(B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period.

APPENDIX C

2026 TCC 136

COURT FILE NO.:

2024-1973(IT)I

STYLE OF CAUSE:

JOHN D. NORTHCUT v. HIS MAJESTY THE KING

PLACE OF HEARING:

Montreal, Quebec

DATE OF HEARING:

April 15-16, 2026

REASONS FOR JUDGMENT BY:

The Honourable Justice Dominique Lafleur

DATE OF JUDGMENT:

July 17, 2026

APPEARANCES:

Counsel for the Appellant:

Jonathan Garbutt

Counsel for the Respondent:

Karine Deschênes

Renaud Fioramore-Beaulieu

COUNSEL OF RECORD:

For the Appellant:

Name:

Jonathan Garbutt

Firm:

Dominion Tax Law

For the Respondent:

Marie-Josée Hogue Deputy Attorney General of Canada Ottawa, Canada