The Queen v. Williams, 90 DTC 6399, [1990] 2 CTC 124 (FCA), rev'd 92 DTC 6320 (SCC)

Stone, J.A.:—This is an appeal from a judgment of the trial division rendered December 15,1988 [1] , whereby the respondent's appeal from an assessment of income tax was allowed with costs. The issue before the trial judge was whether the Minister of National Revenue had properly included in the computation of the respondent's income amounts of regular and enhanced unemployment insurance benefits received by him in the 1984 taxation year, pursuant to paragraph 56(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148, as amended. [2] In allowing the appeal, the learned trial judge concluded that these amounts were exempt from income tax by virtue of the provisions of para- graph 81(1)(a) of the Act? [3] and paragraphs 87(b) and 90(1)(b) of the Indian Act, R.S.C. 1970, c. I-6. [4]

The Facts

The pertinent facts are fully set forth by the trial judge. I shall merely summarize them. The respondent is an Indian within the meaning of the Indian Act. In 1984, while he was a member of the Penticton Indian Band (the "Band") residing on the Penticton Indian Reserve No. 1 (the "Reserve"), he received the following unemployment insurance benefits:

(a) regular unemployment insurance benefits at a rate of $225 per week for a period of 13 weeks commencing January 1, aggregating $2,925. The respondent qualified to receive these benefits by being employed with Greenwood Forest Products Ltd., a company situate on the Reserve, during the years 1982 and 1983;

(b) regular unemployment insurance benefits at a rate of $158 per week for 2 weeks commencing June 17, 1984 aggregating $316. The respondent qualified to receive these benefits by being employed on a “NEED Project" on the Reserve for the period from March 23 to June 1, 1984;

(c) enhanced unemployment insurance benefits at the rate of $157 per week for 25 weeks commencing July 2, the said sum being in addition to regular benefits of $158 per week received in the same period. These benefits were received under a job creation project administered on the Reserve by the Band pursuant to the provisions of section 38 of the Unemployment Insurance Act, 1971, S.C. 1970-71-72, c. 48, as amended. [5] As an unemployment insurance claimant the respondent was eligible to work on the job creation project.

The circumstances surrounding the receipt of the enhanced benefits require a further word of explanation. By a written agreement dated March 28, 1984 between the Band and the Canada Employment and Immigration Commission it was agreed that a job creation project, within the meaning of section 38 of the Unemployment Insurance Act, 1971, would be carried out on the Reserve. The project was to run from March 30 until December 21, 1984. The Commission had no office on the Reserve and was not otherwise resident there. According to the record, the cheques representing all benefits were mailed from the Commission's Regional Computer Centre in Vancouver.

The Issues

The appellant asserts that the trial judge erred in two ways, namely, by applying a "connecting factors" test in determining whether the regular unemployment insurance benefits constituted "property . . . situated on a reserve" Within the meaning of paragraph 87(b) of the Indian Act and, secondly, in determining that the enhanced unemployment insurance benefits were given "under" an “agreement” between a band and Her Majesty within the meaning of paragraph 90(1) (b) of that Act.

Discussion

These issues require separate treatment and I shall deal with them in turn.

Are the regular unemployment insurance benefits exempt from income tax by virtue of paragraph 87(b) of the Indian Act?

The learned trial judge was of the opinion that the regular unemployment insurance benefits were exempt from taxation because they fell within the words "personal property . . . situated on a reserve" [6] in paragraph 87(b) of the Indian Act. In so concluding, he appears to have been much influenced by certain views expressed by Thurlow, A.C.J. (as he then was) in The Queen v. National Indian Brotherhood, [1979] 1 F.C. 103; [1978] C.T.C. 680; 78 D.T.C. 6488 (F.C.T.D.), where the question was whether salaries payable to Indian employees by the corporate respondent, resident in Ottawa, by cheque drawn on an Ottawa bank was "property . . . situated on a reserve" under paragraph 87(b). At page 684 (D.T.C. 109) the learned associate chief justice said:

A chose in action such as the right to a salary in fact has no situs. But where for some purpose the law has found it necessary to attribute a situs, in the absence of anything in the contract or elsewhere to indicate the contrary, the situs of a simple contract debt has been held to be the residence or place where the debtor is found. See Cheshire, Private International Law, seventh edition, 420 et seq.

Although the point was not argued in Nowegijick v. The Queen, [1983] 1 S.C.R. 29; [1983] C.T.C. 20; 83 D.T.C. 5041 the views of the associate chief justice were approved by Dickson, J. (as he then was) in the following passage, at page 22 (D.T.C. 5043; S.C.R. 34):

One point might have given rise to argument. Was the fact that the services were performed off the reserve relevant to the situs? The Crown conceded in argument, correctly in my view, that the situs of the salary which Mr Nowegijick received was sited on the reserve because it was there that the residence or place of the debtor, the Gull Bay Development Corporation, was to be found and it was there the wages were payable. See Cheshire and North, Private International Law (10th ed, 1979) at pp 536 et seq and also the judgment of Thurlow ACJ in R v National Indian Brotherhood, [1979] 1 FC 103 particularly at pp 109 et seq.

The question in that case was whether wages payable to an Indian residing on a reserve by a corporation also resident on the reserve for work performed off the reserve was "property . . . situated on a reserve" within the meaning of paragraph 87(b) of the Indian Act.

Another source of guidance for the learned trial judge was the approach taken by Dickson, J. in Nowegijick for the interpretation of treaties and statutes relating to Indians. He said, at page 23 (D.T.C. 5044; S.C.R. 36):

It is legal lore that, to be valid, exemptions to tax laws should be clearly expressed. It seems to me, however, that treaties and statutes relating to Indians should be liberally construed and doubtful expressions resolved in favour of the Indian. If the statute contains language which can reasonably be construed to confer tax exemption that construction, in my view, is to be favoured over a more technical construction which might be available to deny exemption. [7]

The trial judge was able to conclude that the situs of the regular unemployment insurance benefits ought not to be determined exclusively by reference to the residence of the debtor [8] but, rather, by considering a number of "connecting factors”, namely, (a) the place at which the benefits were payable or received, (b) the place at which the services were performed and (c) the residence of the recipient. He found support for so approaching the question in National Indian Brotherhood where Thurlow, A.C.J. stated that the residence of the debtor test was to apply "in the absence of anything in the contract or elsewhere to indicate the contrary" and in Nowegijick where Dickson, J. stated that the situs of certain wages was on the reserve because the debtor resided there and “it was there the wages were payable”.

The respondent urges that, in any event, the residence of the debtor test ought not to be applied because it is essentially a rule of conflict of laws that ill- fits the determination of whether the benefits in question are "property . . . situated on a reserve" within the meaning of paragraph 87(b) of the Indian Act.

In examining these questions, I begin with the principle of construction enunciated by the Supreme Court of Canada in Nowegijick, and also by recalling the observations of Dickson, J., at page 23 (D.T.C. 5043; S.C.R. 36), that Indians, in affairs of life that are not governed by treaties or the Indian Act, "are subject to all the responsibilities, including the payment of taxes, of other Canadian citizens” and, at page 26 (D.T.C. 5046; S.C.R. 41), that the exemption contained in paragraph 87(b) is concerned with “personal property situated on a reserve and only with property situated on a reserve".

It was not argued that, merely because the property here took the form of unemployment insurance benefits rather than wages, the rule for determination of situs should be different. That rule is discussed in the editions of Cheshire and Cheshire and North cited by Thurlow, A.C.J. in National Indian Brotherhood and Dickson, J. in Nowegijick, respectively. At page 538 of the 10th edition, the learned editors stated:

Although the place of residence is chosen because it is there that recovery by action is possible, it has been suggested that a debt is situated in the country where it is payable even though this does not represent the residence of the debtor. The Courts, however, have not taken this view. They have insisted that the residence of the debtor is "an essential element in deciding the situs of the debt" [4] . If the debtor resides in two or more countries, then, indeed, the debt is situated in the one in which

it is required to be paid by an express or implied provision of the contract or, if there is no such provision, where it would be paid according to the ordinary course of business. [5]

If, however, the debtor resides only in one country, it is there alone that the debt is situated notwithstanding that it may be expressly or implicitly payable elsewhere. [6]

[1924] 2 Ch. 101 (C.A.), are among the many cases cited by the learned editors of that work for that proposition. [9]

I am of the view, therefore, that what Thurlow, A.C.J. had in mind was the situation recognized in Cheshire that the terms of a contract creating a simple debt, or the place where a debt is payable in the ordinary course of business, may be looked at for guidance in determining the situs of that debt in a case where the debtor is resident in more than one country or, as pointed out by Atkin, L.J. in New York Life at pages 119-20, possibly in the place where rules of practice permit enforcement of such a debt even though the debtor may no longer reside within the jurisdiction of a court. [10]

No contract term of the kind above referred to exists in the case at bar. Assuming, for the moment, that the Canada Employment and Immigration Commission resided both in Ottawa and Vancouver and that the benefits were payable on the Reserve, I cannot see how the respondent can be assisted by the principle that a court may look to the place where a debt is payable in the ordinary course of business in selecting which of two residences of a debtor should determine the situs of that debt. In my view, for that principle to apply it would have to be shown as a minimum that the Commission was resident both elsewhere in Canada and on the Reserve. That is simply not the case.

It is also suggested that the intention to introduce the place where a debt is payable as the basis of a new test for determining the situs of a chose in action falling under paragraph 87(b) of the Indian Act emerges from the language of Dickson, J. in Nowegijick, when he stated that the wages there in question were situated on a reserve because the debtor resided there "and it was there the wages were payable”. I find the respondent's assertion difficult to accept. Dickson, J., like the learned associate chief justice, based himself on an edition of Cheshire where such a test is simply not espoused. Also, the debtoremployer in Nowegijick had its office on a reserve where, in point of fact, the wages were payable. I do not find in that case a manifest intention to expand the test for determining the situs of a simple debt falling within paragraph 87(b).

Finally, I am unable to accept that the residence of the debtor test above discussed ought not to be applied for the reason that it is a conflict of laws test. In National Indian Brotherhood the test was applied in determining the situs of property falling within paragraph 87(b) of the Indian Act, and this was approved in Nowegijick. Although the origin of the principle derives from ecclesiastical law [11] , it has also been applied in the law of probate and administration and of assignment of debts. [12]

I conclude that the benefits received by the respondent in 1984 were not "property . . . situated on a reserve" within the meaning of paragraph 87(b) of the Indian Act and, therefore, are not exempt from income tax.

Are the enhanced unemployment issuance benefits exempt from income tax by virtue of paragraph 90(1)(b) of the Indian Act?

The appellant contends that the trial judge erred in deciding that the enhanced benefits are exempt from income tax because they are "personal property that was . . . given to Indians or to a band under a treaty or agreement between a band and Her Majesty" and, therefore, by virtue of paragraph 90(1)(b) of the Indian Act, are "deemed always to be situated on a reserve" for the purposes of section 87 of that Act. The judge was here willing to construe the word "agreement" to embrace the agreement of March 28, 1984 between the Band and the Canada Employment and Immigration Commission.

The appellant takes the position that the word "agreement" must be read in association with the word "treaty" and, as so read, that it may be seen as contemplating only an agreement which focuses specifically on the special relationship between the federal government and Indians or Indian bands and not one by virtue of which a band merely participates in a national program such as that recognized by section 38 of the Unemployment Insurance Act, 1971. The submission is also made that the enhanced benefits were not given under the agreement of March 28, 1984 but were paid under an Act of Parliament because, by the terms of the agreement (clause 1), the Commission undertook and agreed "to pay benefits in accordance with section 38 of the Unemployment Insurance Act, 1971 and the regulations made pursuant thereto".

What must be borne in mind, I think, is that the enhanced benefits were made available to the respondent because of the agreement between the Band and Her Majesty. It could not have been otherwise for, in the absence of that agreement, no benefits could have been paid. The agreement was, thus, central to the operation of section 38 of the Unemployment Insurance Act, 1971. I also do not find it unreasonable to describe those benefits as property "given" to an Indian in the sense that word is used in paragraph 90(1)(b) of the Indian Act. To so interpret it would, it seems to me, accord with what was envisioned by the Nowegijick principle of construction.

It remains to decide whether these benefits may properly be viewed as given under an "agreement" within the meaning of that paragraph. It is argued that they were made available in pursuance of a national policy to alleviate unemployment recognized in section 38 of the Unemployment Insurance Act, 1971 and, therefore, were not given under an "agreement" with the Band qua Band at all. While the word “treaty”, appearing as it does immediately before the word "agreement" in paragraph 90(1)(b), may offer some support for the argument that only an agreement that relates to Indians or Indian bands perse is intended, I am not inclined to limit the word in that fashion. Acceptance of this argument would, I think, require us to pay insufficient attention to what I take to be the true import of the Nowegijick principle of construction which, if I have understood it correctly, is that canons of construction applicable to the interpretation of other statutes are not to be applied to the interpretation of a statute relating to Indians if the language of such a statute can reasonably be construed to confer tax exemption. [13] The agreement here in question was made in furtherance of a national policy, but it remained an "agreement" between the Band and Her Majesty in a broad sense. At very least its meaning is doubtful and, as required by Nowegijick, such doubt should be resolved in favor of the Indians. [14] I find nothing in the evidence to suggest that persons other than members of the Band were engaged in the job creation project, which, as Schedule E of the agreement thereto provides, had as its objective "to improve the commercial value of Band timber areas".

Having already concluded that the regular unemployment insurance benefits are not exempt from income tax, it follows that only the enhanced portion of the benefits here under discussion are so exempt.

Disposition

I would therefore allow the appeal, set aside the judgment of the trial division dated December 15, 1988 and refer the matter back to the Minister for reassessment on the basis that the regular unemployment insurance benefits received by the respondent during the 1984 taxation year are not exempt from income tax but that the enhanced portion of unemployment insurance benefits received by the respondent during that year is exempt from income tax. Success being fairly evenly divided, I would make no order as to costs.

Appeal allowed in part.