After finding that s. 75(2) did not apply to attribute to the Canadian-resident taxpayer a taxable capital gain realized by an Austrian private foundation (a resident of Austria), the Court went on to find that, in any event, such application of s. 75(2) would have been precluded by the Canada-Austria Income Tax Convention. The Minister argued that Art. 13(5) of the Austrian treaty (providing that the alienation of property (other than excepted property) by a resident of Austria was taxable only in Austria) did not apply, because s. 75(2) treated the foundation's proceeds of alienation as the taxpayer's proceeds and because the taxpayer, being a Canadian resident, was not within the scope of the Convention for Canadian tax purposes.
The Court rejected this submission. There was at least one article reserving for Canada the right to attribute income earned in Austria (specifically, under the s. 91 foreign accrual property rules). There was no similar reservation in respect of s. 75(2).
Regarding the Minister's argument that Article 13 was only included "for greater certainty," Sharlow J.A. stated:
The OECD model conventions, including the Canada-Austria Income Tax Convention, generally have two purposes – the avoidance of double taxation and the prevention of fiscal evasion. Article XIII (5) of the Canada-Austria Income Tax Convention speaks only to the avoidance of double taxation. "Double taxation" may mean either juridical double taxation (for example, imposing on a person Canadian and foreign tax on the same income) or economic double taxation (for example, imposing Canadian tax on a Canadian taxpayer for the attributed income of a foreign taxpayer, where the economic burden of foreign tax on that income is also borne indirectly by the Canadian taxpayer). By definition, an attribution rule may be expected to result only in economic double taxation.
The Crown's argument requires the interpretation of a specific income tax convention to be approached on the basis of a premise that excludes, from the outset, the notion that the convention is not [sic] intended to avoid economic double taxation. That approach was rejected by Justice Miller, correctly in my view.