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, as found in the Tax Court. Sharlow J.A., after referring to the Minister's argument that Article 13(5) did not exempt the gain because the taxpayer was "not resident in Austria, and also because the tax in issue is not imposed on the basis that [he] is the alienator of the shares, but by the operation of the attribution rule in subsection 75(2)," stated (at para. 64):
Justice Miller rejected that argument because he considered it inconsistent with the language of Article XIII (5), and the apparent premise for another provision of the Canada-Austria Income Tax Convention, Article XXXVIII (2). In that provision, Canada reserves the right to tax residents of Canada on income and gains attributed to them pursuant to section 91 of the Income Tax Act (the foreign accrual property rules). The existence of that reservation suggests that an underlying premise of the Canada-Austria Income Tax Convention is that tax on attributed income generally is within its scope. There is no similar reservation relating to the attribution of income and gains under subsection 75(2), which means that Canada has not reserved the right to tax residents of Canada on income and gains attributed to them under subsection 75(2).
Regarding the Minister's argument that Article 13 was only included "for greater certainty", Sharlow J.A. noted that treaties addressed double taxation, and stated:
"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.