Greyeyes v. The Queen, 78 DTC 6043, [1978] CTC 91 (FCTD)

Mahoney, J:—The plaintiff appeals against the inclusion in her taxable income for 1974 of the sum of $1,839.50 which she says is exempt from taxation by virtue of certain provisions of the Indian Act, RSC 1970, c I-6. The material facts were agreed:

STATEMENT OF AGREED FACTS

1. The Plaintiff is a full status Indian as defined by the Indian Act, RSC 1970 C I-6 and was at all material times a resident of Canada.

2. During the school term of 1974 the Plaintiff attended the University of Calgary in Calgary, Alberta as a student enrolled in a fulltime course of post-secondary education.

3. While attending the University of Calgary the Plaintiff received from the Department of Indian Affairs and Northern Development in Ottawa the sum of $2,339.50 to assist her in her post-secondary education pursuant to a programme of the Department of Indian Affairs and Northern Development.

4. The Plaintiff, at all relevant times, was neither living on nor attending classes on a reserve as that word is defined in the said Indian Act.

5. The said funds received by the Plaintiff were given to her pursuant to an agreement and treaty between the Plaintiff's Band and Ottawa and specifically pursuant to an agreement to assist band members in their education in compliance with the obligations of the Federal Government under Treaty No 6.

The defendant contends that the $1,839.50 was properly included in the plaintiff’s 1974 taxable income by virtue of the following provisions of the Income Tax Act:

2. (1) An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year.

(2) The taxable income of a taxpayer for a taxation year is his income for the year minus the deductions permitted by Division C.

56. (1) . . . there shall be included in computing the income of a taxpayer for a taxation year,

(n) the amount, if any, by which

(i) the aggregate of all amounts received by the taxpayer in the year, each of which is an amount received by him as or on account of a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer,

exceeds

(ii) $500:

The plaintiff contends that the $1,839.50 was wrongly included by virtue of paragraph 81 (1 )(a) of the Income Tax Act and section 87 and subsection 90(1) of the Indian Act:

[Income Tax Act]

81. (1) There shall not be included in computing the income of a taxpayer for a taxation year,

(a) an amount that is declared to be exempt from income tax by any other enactment of the Parliament of Canada;

[Indian Act]

87. Notwithstanding any other Act of the Parliament of Canada or any Act of the legislature of a province, but subject to subsection (2) and to section 83, the following property is exempt from taxation, namely:

(a) the interest of an Indian or a band in reserve or surrendered lands;

and

(b) the personal property of an Indian or band situated on a reserve;

and no Indian or band is subject to taxation in respect of the ownership, occupation, possession or use of any property mentioned in paragraph (a) or (b) or is otherwise subject to taxation in respect of any. such property; and no succession duty, inheritance tax or estate duty is payable on the death of any Indian in respect of any such property or the succession thereto if the property passes to an Indian, nor shall any such property be taken into account in determining the duty payable under the Dominion Succession Duty Act, being chapter 89 of the Revised Statutes of Canada, 1952, or the tax payable under the Estate Tax Act, on or in respect of other property passing to an Indian.

90. (1) For the purposes of sections 87 and 89, personal property that was

(a) purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands, or

(b) given to Indians or to a band under a treaty or agreement between a band and Her Majesty,

Shall be deemed always to be situated on a reserve.

It is, of course, paragraph (b) of each of section 87 and subsection 90(1) that is pertinent and, further, it is the plaintiff's position that those provisions exclude the $1,839.50 from her taxable income entirely independent of subsection 81(1) of the Income Tax Act which is pleaded only as supplementary and alternative support for her position.

I will, for convenience, hereafter refer to the $2,339.50 payment as “the scholarship’’. In light of the agreed facts, the scholarship was the personal property of an Indian situated on a reserve within the meaning of section 87 of the Indian Act; it is deemed to be such by virtue of subsection 90(1). Nothing turns on the fact that the plaintiff did not reside on a reserve or apply the scholarship to classes conducted thereon. It is the property, not the Indian, that is required to be situated on a reserve.

Aside from the particular references to succession duties and estate tax, which have no bearing on this case, section 8/7 appears, on a plain reading, to make three independent provisions vis-à-vis the personal property of an Indian situated on a reserve, that is, in this case, the scholarship. Firstly, “the following property is exempt from taxation, namely’’: the scholarship. Secondly, “no Indian . . . is subject to taxation in respect of the ownership, occupation, possession or use of’’ the scholarship. Thirdly, “no Indian . . . is otherwise subject to taxation in respect of’’ the scholarship.

Counsel appear from their argument to have discarded the second provision as having any application in this case. I agree. To the extent that the terms “ownership, occupation, possession or use’’ can have any application to a scholarship, the inclusion of the amount of a scholarship, or part of such amount, in an Indian’s taxable income under the Income Tax Act does not result in a tax in respect of its ownership, occupation, possession or use.

Extensive argument was directed to the first provision with the defendant taking the position that it is well settled that the Income Tax Act levies a tax on persons, not on property and the plaintiff urging that decisions to that effect made in cases involving very different facts ought not bind the Court in an entirely novel factual Situation. The general question of the nature of the incidence of income tax has been considered on numerous occasions by the highest authorities. It is not necessary for me to go beyond the decision of the Supreme Court of Canada in Sura v MNR, [1962] CTC 1 at 4; 62 DTC 1005 at 1006,* [1] where Mr Justice Taschereau dealt with the charging provision enacted in 1948 [2] which was identical to the present subsection 2(1):

Nothing in subsequent amendments of the Act changes the rule that it is not ownership of property which is taxable, but that the tax is imposed on a taxpayer, and the tax is determined by the income received by the person who is the legal beneficiary from employment, businesses, property or ownership. As Mr Justice Mignault stated in the case of McLeod v Minister of Customs and Excise, [1917-27] CTC 290, at page 296 [1 DTC 85 at page 87]:

‘‘All of this is in accord with the general policy of the Act which imposes the Income Tax on the person and not on the property.”

The defendant’s position in this respect is well taken. That the Income Tax Act imposes a tax on the person and not on his property is too firmly established to now be questioned in this Court notwithstanding that the determination may not have been specifically made with the provisions of section 87 of the Indian Act in mind.

Before leaving this subject, I should refer to the decision of the Federal Court of Appeal in MNR v The Iroquois of Caughnawaga, [1977] 2 FC 269; [1977] CTC 49; 77 DTC 5127. With respect, I do not think it applies in this case. It did not deal with income tax. While the Court divided on the question of its jurisdiction, it appears to have been unanimous in its decision that employers’ premiums imposed under the Unemployment Insurance Act, 1971, SC 1970-71-72, c 48, were not taxation of property within the contemplation of section 87 of the Indian Act. I do not infer from that conclusion a decision that such premiums were necessarily some other form of taxation which, in the result, section 87 did not preclude. Rather it seems open to construe the majority decision as holding that such premiums are not a form of taxation at all, a question expressly left open by the Chief Justice in his dissent.

The remaining provision of section 87 is that the plaintiff is not “otherwise subject to taxation in respect of’’ the scholarship. Does the inclusion of the amount of the scholarship (less $500) in the calculation of her taxable income upon which an income tax is assessed and levied result in her being subject to taxation in respect of the scholarship? In my opinion, it does.

The tax payable by the plaintiff under the Income Tax Act is determined by the application of a prescribed rate to her taxable income. The higher her taxable income, the greater her income tax. The amount by which the plaintiff’s scholarship exceeded $500 was added to her taxable income. As a result her taxable income was $1,839.50 more than it would otherwise have been and, it follows, she was assessed more income tax than if it had not been so added. I do not see how, having regard to ordinary English usage, I can come to any conclusion but that she was thereby made subject to taxation in respect of the scholarship.

I do not consider it necessary in the circumstances to rely on paragraph 81(1)(a) of the Income Tax Act. Section 87 of the Indian Act, by its own terms, prevails over any contrary intention expressed in the Income Tax Act.

The plaintiff succeeds. Her 1974 income tax return will be referred back to the Minister of National Revenue for reassessment on the basis that the scholarship was not taxable as income in her hands. The plaintiff is entitled to her costs.