Citation: 2009TCC325
Date: 20090616
Docket: 2005-830(IT)G
BETWEEN:
RONALD BALLANTYNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The Appellant is an Indian as defined in
section 2 of the Indian Act. The issue in this case is whether the income
derived by the Appellant from his fishing business in 2001 and 2002 is exempt
from taxation pursuant to subsection 87(1) of the Indian Act (and
therefore would not be included in computing his income for the purposes of the
Income Tax Act as a result of the provisions of paragraph 81(1)(a)
of that Act).
[2] At the
conclusion of the first day of the hearing, counsel for the Appellant and
counsel for the Respondent filed three separate statements of agreed facts. The
facts that were agreed upon are set out in Schedule “A” to these Reasons. The
references to the Exhibits have not been included.
[3] In the Notice of
Appeal that was filed the Appellant stated that he was appealing on the basis
that his income was exempt from taxation as a result of the provisions of
section 87 of the Indian Act. He also stated that he had a right
to commercially fish as a result of the provisions of Treaty 5 and that
imposing an income tax on his fishing income violated his rights under Treaty
5. At the commencement of the hearing, counsel for the Appellant stated that
the Appellant was no longer pursuing an argument that his income from fishing
should not be taxed based on Treaty 5 and was only arguing that his income was
exempt from taxation as a result of the provisions of section 87 of the Indian
Act. Counsel for the Appellant stated that this decision had been made
several months prior to the hearing but the Notice of Appeal had not been
amended to delete the references to the argument related to Treaty 5. Prior to
the commencement of the Appeal, the Notice of Appeal was amended to delete the
reference to these arguments. Therefore the only argument raised by the
Appellant was that his income was exempt from taxation as a result of the
provisions of section 87 of the Indian Act.
[4] Subsections
87(1) and (2) of the Indian Act provide as follows:
87. (1) Notwithstanding any other Act of Parliament
or any Act of the legislature of a province, but subject to section 83 and
section 5 of the First Nations Fiscal and Statistical Management Act,
the following property is exempt from taxation:
(a) the interest of
an Indian or a band in reserve lands or surrendered lands; and
(b) the personal
property of an Indian or a band situated on a reserve.
(2) No Indian or band is subject to taxation
in respect of the ownership, occupation, possession or use of any property
mentioned in paragraph (1)(a) or (b) or is otherwise subject to taxation in respect of any
such property.
[5] The Appellant
submitted that the personal property in question is income and not the fish
that were sold by the Appellant. In Williams v. The Queen, [1992]
1 S.C.R. 877, Gonthier J. stated as follows in relation to the application
of section 87 of the Indian Act to unemployment insurance benefits:
20 Section
56 of the Income Tax Act is the section which taxes income from unemployment insurance
benefits. That section specifies that unemployment insurance benefits which are
"received by the taxpayer in the year" are to be included in
computing the income of a taxpayer. The parties have approached this question
on the basis that what is being taxed is a debt owing from the Crown to the
taxpayer on account of unemployment insurance which the taxpayer has qualified
for. This is not precisely true, since the liability for taxation arises not
when the debt (if that is what it is) arises, but rather when it is paid, and
the money is received by the taxpayer. However, it is true that the taxation
does not attach to the money in the hands of the taxpayer, but instead to the receipt
by the taxpayer of the money. Thus, the incidence of taxation in the case of
unemployment insurance benefits is on the taxpayer in respect of the
transaction, that is, the receipt of the benefit.
21 This
Court's decision in Nowegijick v. The Queen, [1983] 1 S.C.R. 29,
stands for the proposition that the receipt of salary income is personal
property for the purpose of the exemption from taxation provided by the Indian
Act. I can see no difference between salary income and income from
unemployment insurance benefits in this regard, therefore I hold that the
receipt of income from unemployment insurance benefits is also personal
property for the purposes of the Indian Act.
22 Nowegijick
also stands for the proposition that the inclusion of personal property in the
calculation of a taxpayer's income gives rise to a tax in respect of that
personal property within the meaning of the Indian Act, despite the fact
that the tax is on the person rather than on the property directly.
[6] Section 9 of the
Income Tax Act is the section that provides that a taxpayer’s income
from a business is the taxpayer’s profit from that business. Therefore the
incidence of taxation, in the case of a business, is on the taxpayer in respect
of the taxpayer’s profit from that business. For a fishing business, it is not
imposed on the fish but on the profit realized from the sale of the fish.
A sale of fish does not, in and of itself, necessarily result in income tax
being imposed. If, for example, for a particular year that a business is being
carried on and fish are sold, no profit is realized, then there is no tax
liability under the Income Tax Act in relation to the business. It
therefore seems to me that the property in question for the purposes of the Indian
Act is the profit from the Appellant’s fishing business and not the fish
since the income tax liability (subject to the Indian Act) is based on
the profit realized. The particular issue in this case is whether this profit
was personal property situated on a reserve.
[7] In Williams,
supra, Gonthier J. described the connecting factors test that is to be used
to determine if the personal property in question is personal property situated
on a reserve:
37 The
approach which best reflects these concerns is one which analyzes the matter in
terms of categories of property and types of taxation. For instance, connecting
factors may have different relevance with regard to unemployment insurance
benefits than in respect of employment income, or pension benefits. The first
step is to identify the various connecting factors which are potentially
relevant. These factors should then be analyzed to determine what weight they
should be given in identifying the location of the property, in light of three
considerations: (1) the purpose of the exemption under the Indian Act; (2) the
type of property in question; and (3) the nature of the taxation of that
property. The question with regard to each connecting factor is therefore what
weight should be given that factor in answering the question whether to tax
that form of property in that manner would amount to the erosion of the
entitlement of the Indian qua Indian on a reserve.
[8] Linden J. in Folster v. The Queen, [1997] 3
C.T.C. 157, 97 DTC 5315, after referring to this connecting factors test as out
in Williams, stated that:
16 This
new test was not designed to extend the tax exemption benefit to all Indians. Nor
was it aimed at exempting all Indians living on reserves. Rather, in
suggesting reliance on a range of factors which may be relevant to determining
the situs of the property, Gonthier J. sought to ensure that any tax exemption
would serve the purpose it was meant to achieve, namely, the preservation of
property held by Indians qua Indians on reserves so that their traditional way
of life would not be jeopardized.
(emphasis added)
[9] In Recalma
v. The Queen, [1998] 2 C.T.C. 403, 98 DTC 6238, Linden J. stated as
follows in relation to the connecting factors:
10 It
is plain that different factors may be given different weights in each case.
Extremely important, particularly in this case, is the type of income being
considered as attracting taxation. Where the income is employment or salary
income, the residence of the taxpayer, the type of work being performed, the
place where the work was done and the nature of the benefit to the Reserve are
given great weight. (See Folster, supra). Where the income is
unemployment insurance benefits, the most weighty factor is where the
qualifying work is performed. (See Williams, supra) Where business
income is involved, most weight was placed on where the work was done and where
the source of the income was situated. (See Southwind v. The
Queen, [1998] F.C.J. No. 15, January 14, 1998, Docket No. A-760-95
(F.C.A.))
(emphasis added)
[10] In this
particular case the type of income being considered is business income. In Southwind
v. The Queen, [1998] 1 C.T.C. 265, 98 D.T.C. 6084, Linden J. stated
that:
12 For
the Crown, Mr. Bourgard rightly offered a more complex set of factors to
consider in deciding whether business income is situated on the reserve. He
suggested that we examine (l) the location of the business activities, (2) the
location of the customers (debtors) of the business, (3) where decisions
affecting the business are made, (4) the type of business and the nature of the
work, (5) the place where the payment is made, (6) the degree to which the
business is in the commercial mainstream, (7) the location of a fixed place of
business and the location of the books and records, and (8) the residence of
the business' owner.
13 As
was found by the Tax Court Judge, and having considered all of these factors, I
am of the view that the appellant's business income does not fit within
paragraph 87(1)(b) because it is not property situated on a reserve. While it
is significant that the appellant lives on a Reserve, engages in some
administrative work out of his home on the Reserve, and stores the business
records and the business assets which he owns on the Reserve when they are not
in use,5 the appellant, in my view, is engaged not in a
business that is integral to the life of the Reserve, but in a business that is
in the "commercial mainstream".
(emphasis added)
[11] While “the degree
to which the business is in the commercial mainstream” is listed as one of the
factors in paragraph 12 referred to above, it is stated as conclusion and
contrasted with “integral to the life of the Reserve” in paragraph 13 (as noted
above). In Recalma, supra, Linden J. stated that:
9 In
evaluating the various factors the Court must decide where it "makes the
most sense" to locate the personal property in issue in order to avoid the
"erosion of property held by Indians qua Indians" so as to protect
the traditional Native way of life. It is also important in assessing the different
factors to consider whether the activity generating the income was
"intimately connected to" the Reserve, that is, an "integral
part" of Reserve life, or whether it was more appropriate to consider it a
part of "commercial mainstream" activity. (see Folster v. The
Queen (1997), 97 D.T.C. 5315 (F.C.A.)) We should indicate that the
concept of "commercial mainstream" is not a test for determining
whether property is situated on a reserve; it is merely an aid to be used in
evaluating the various factors being considered. It is by no means
determinative. The primary reasoning exercise is to decide, looking at all the
connecting factors and keeping in mind the purpose of the section, where the
property is situated, that is, whether the income earned was "integral to
the life of the Reserve", whether it was "intimately connected"
to that life, and whether it should be protected to prevent the erosion of the
property held by Natives qua Natives.
(emphasis added)
[12] In The Queen
v. Shilling, 2001 DTC 5420, the federal Court of Appeal stated that:
65 However, in the context
of determining the location of intangible property for the purpose of section
87, "commercial mainstream" is to be contrasted with "integral
to the life of a reserve": Folster, supra, at paragraph 14.
[13] In Horn v.
The Queen, 2008 FCA 352, 2008 DTC 6743, Evans J. stated that:
10 However,
we agree with the appellants that whether employment income is earned in the
"commercial mainstream" is a conclusion to be drawn from an examination
of the connecting factors, and not a reason in itself for concluding that
employment income is not situated on a reserve: Recalma v. Canada
(1998), 158 D.L.R. (4th) 59 (F.C.A.) at para. 9.
[14] The comments of
the Federal Court of Appeal in relation to whether income is earned in the
commercial mainstream would apply equally whether the income in question is
business income or employment income as in each case the issue is whether that
income is personal property situated on a reserve. Therefore the question of
whether the business income of the Appellant is earned in the commercial
mainstream should not be analyzed as a connecting factor but the question is
whether the connecting factors lead to a conclusion that the business income of
the Appellant was earned in the commercial mainstream. As well, since
“‘commercial mainstream’ is to be contrasted with ‘integral to the life of a
Reserve’”, it seems to me that an activity, for the purposes of section 87 of
the Indian Act, cannot, at the same time, be both in the “commercial
mainstream” and “integral to the life of a Reserve”.
[15] The following
connecting factors were identified as relevant connecting factors in
determining whether business income is situated on a reserve in Southwind,
supra:
(l) the
location of the business activities,
(2) the
location of the customers (debtors) of the business,
(3) where
decisions affecting the business are made,
(4) the
type of business and the nature of the work,
(5) the
place where the payment is made,
(6) the degree to which the
business is in the commercial mainstream, (As
noted above although this is listed as a factor, the question will be whether
the connecting factors lead to a conclusion that the Appellant’s business was
in the commercial mainstream.)
(7) the location of a fixed place
of business and the location of the books and records, and
(8) the
residence of the business' owner.
Location of the
Business Activities / Type of Business / Nature of the Work
[16] The Grand Rapids
Reserve (where the Appellant has resided since he was born and still resides)
is located on the northwestern shore of Lake
Winnipeg near the mouth of the
Saskatchewan River. The Appellant fished in two different areas on Lake Winnipeg.
For one area he would launch his boat from behind his house and for the other
area (the Gull Bay area) he would haul his boat by truck
approximately 45 miles from the Grand Rapids Reserve. The Gull Bay area (as measured in a straight line from the Grand
Rapids Reserve) is approximately 15 miles from the Grand Rapids Reserve.
[17] The Appellant’s
estimate is that he would fish in the Gull Bay area approximately 50% of the time that he was
fishing and the balance in the area near the Grand Rapids Reserve. It was
acknowledged by the Appellant that the Reserve did not include any part of Lake Winnipeg.
Therefore when he was in his boat on the water he was off the Reserve.
[18] The fishing
season would generally start around the first of June and last for 6 weeks. The
Appellant was assigned a quota that limited the amount of fish he could catch.
The Appellant would usually try to catch his quota as soon as possible to
reduce his costs. Generally, the Appellant would catch his quota and be
finished fishing by the end of June.
[19] The Appellant and
his helper would make one or two trips in one day on the water during the
fishing season. His first trip of the day would start around 5:00 a.m. and
he would return to shore around 11:00 a.m. Prior to departing he would spend
approximately one hour getting ready or 2 hours (including travel time) if he
was fishing in the Gull Bay area. After returning to shore the Appellant and
his helper would remove the heads from the fish and cut open the fish and
remove the organs. Although the Appellant indicated that occasionally he would
remove the heads and dress the fish while he was still in the boat, he stated
that this would not happen very often and I accept that this would not happen
often.
[20] When the
Appellant was fishing in the Gull Bay area, the fish would be cleaned on the
shore (which was not part of the Reserve) or transported back to the Grand
Rapids Fishermen’s Co-op (the “Co-op”) which is located on the Grand Rapids
Reserve and cleaned there. I accept the Appellant’s testimony that the majority
of the time the fish would be dressed at the Co-op. The estimate of the
Appellant is that the dressing of the fish and the other onshore matters that
he would attend to during the fishing season would take approximately 2 hours.
[21] As a result, if
the Appellant only made one trip on the water, he would spend approximately 3
hours working on shore (preparing the boat and dressing the fish after he
returned) and 6 hours on the water. If he traveled to the Gull Bay area his
time spent on shore would be greater but since the Gull Bay area is 45
miles from the Grand Rapids Reserve, the extra time would be spent traveling
off the Reserve to the Gull Bay area and back to the Reserve.
[22] When the
Appellant was on the water he would set the nets (he would usually use between
6 and 10 nets) and haul the nets.
[23] If there were a
lot of fish the Appellant would make a second trip on the water in the evening.
If he made a second trip he would leave around 7:00 p.m. and return around 11:00
p.m. These fours hours would again be spent off the Reserve as he would be on Lake Winnipeg.
[24] There was also
maintenance work that would be done on the Reserve and some in the town of Grand Rapids
(which is off the Reserve). The Appellant did his banking at the Credit Union
located on the Reserve.
[25] Therefore the
Appellant’s business activities were performed on the Reserve and off the Reserve.
Since the Appellant was carrying on business for himself he did not keep track
of his hours. It is very difficult to determine exactly how many hours he spent
each year working on the Reserve (preparing for fishing, doing maintenance
work, cleaning the boat and the trays, and dressing the fish) and off the Reserve
setting and hauling the nets, dressing the fish in Gull Bay, arranging for the
maintenance work that was performed of the Reserve and occasionally buying
supplies at locations off the Reserve. The majority of the time spent during
the days when he was fishing would be spent off the Reserve, either on Lake
Winnipeg or in the Gull Bay area. He would spend 6 hours a day on Lake
Winnipeg when he made one trip and 10 hours a day on Lake Winnipeg
when he made two trips. His onshore duties during the days when he was fishing
would take approximately 3 hours. It would seem to me that the most important
task in a fishing business would be catching the fish, which took place off the
Reserve.
[26] Counsel for the
Appellant stressed that Bowie J. in his decision in Bell v.
The Queen, 98 D.T.C. 1857, [1998] 4 C.T.C. 2526, [1999] 1 C.T.C. 2086,
stated that:
39 The
fact that the work is performed at a location away from the Reserve is not of
itself determinative of anything. Indeed, the work could only be done away from
the Reserve, because that is where the fish are.
[27] I agree that the
fact that the Appellant caught the fish on Lake Winnipeg is not, in and of
itself determinative. If for example, the Appellant were to catch fish on Lake Winnipeg
and sell his entire catch to the individual residents of the Reserve for their
own consumption, then the result would not necessarily be the same as in this
case.
Location of the
Customers
[28] The Appellant had only one customer for his fish. All of his fish were
sold to the Co-op who were acting as an agent for Freshwater Fish Marketing
Corporation (“FFMC”). It is the position of the Appellant that his customer was
the Co-op and it is the position of the Respondent that the Appellant’s
customer was FFMC.
[29] FFMC would purchase fish caught in Manitoba, Saskatchewan,
Alberta, the Northwest Territories, and part of Northwestern Ontario. It purchased fish
caught in Lake Winnipeg from various agents and co-operatives. Some of the
agents or co-operatives were located on reserves (such as the Co-op which was
located on the Grand Rapids Reserve) and others were not located on a reserve.
FFMC dealt with the Appellant on the same terms and in the same manner as it
dealt with all other fishermen, whether such person was an Indian (as defined in section 2 of the Indian Act) or not.
[30] The agreement between FFMC and the Co-op dated June 17, 2002 was
introduced as an Exhibit. Although this agreement is dated June 17, 2002, since
the parties agreed that the Co-op purchased fish as agent for FFMC in both of
the years under appeal, presumably there was a similar agreement in place for
2001 and the earlier part of 2002. Paragraph 3.01 of this agreement provides as
follows:
3.01 The
Agent shall purchase on behalf of the Corporation all fish lawfully fished by
fishers which are offered for sale to the Agent …
[31] Paragraph 5.03 of this agreement provides that:
5.03 All
payments made by the Corporation to the Agent to pay fishers shall be held in
trust by the Agent for the Corporation until paid to the fishers.
[32] As a result, the Co-op clearly was purchasing fish for FFMC and could
not sell the fish to any other person (since it was purchasing on behalf of
FFMC all fish lawfully fished and offered for sale) and the funds it received
from FFMC for the fishers were held in trust for the fishers until paid to them.
[33] In Bowstead and Reynolds on Agency, 17th ed,
it is stated at page 459 as follows:
In the absence
of other indications, when an agent makes a contract, purporting to act solely
on behalf of a disclosed principal, whether named or unnamed, he is not liable
to the third party on it. Nor can he sue the third party on it.
“There is no
doubt as to the general rule as regards an agent, that where a person contracts
as agent for a principal, the contract is the contract of the principal and not
that of the agent; and prima facie, at common law the only person who may sue
is the principal and the only person who can be sued is the principal.”
[34] In this case it is clear that the principal was disclosed. The agreed
statements of facts included the following:
The Co-op
purchases fish as agent for Freshwater Fish. All of the Appellant’s fish catch
is purchased by the Co-op on behalf of Freshwater Fish.
[35] That the Appellant knew that the Co-op was purchasing fish as agent for
FFMC is clear from the Appellant’s testimony. The following is an excerpt from
the Appellant’s testimony:
Q When
you catch your fish, where do you deliver your fish to?
A To the
Grand Rapids Fishermen's Co‑op.
Q Do you
know where the fish go from the Grand Rapids Fishermen's Co-op?
A They
go to Freshwater Fish Marketing Corporation.
Q And
when you say the Freshwater Fish Marketing Corporation, is there a particular
location of that organization where these fish go?
A It's
in Winnipeg here, in Transcona.
Q Who
pays you?
A The Grand Rapids Fishermen's Co-op.
…
and during cross
examination:
Q Now
when you deliver the fish to the Co-op, when you come with the boat and you
unload it and they go through it and they throw out the bad fish and keep the
good fish and grade it and all that and give you the daily catch record, we
know the fish get trucked down to Winnipeg to the plant in Transcona,
Freshwater Fish Marketing Board, correct?
A Correct.
Q So the
Co-op buys the fish on behalf of Freshwater Fish Marketing Board, correct?
A It's
an agent of Freshwater Fish, yes.
Q And so
the Co-op doesn't buy the fish and do something with it? They buy it for the
specific purpose of -- I mean it's specifically for Freshwater Fish? They're
buying it on behalf of Freshwater Fish, you don't disagree with that?
A No.
Q And
Freshwater Fish Marketing Board pays the Co-op with the money and it's that
money that's used to pay you as a fishermen --
A Yes.
Q --
correct?
A Yes.
…
Q Now in
the years in issue, your catch, you didn't sell any of your fish to anyone
other than the Freshwater Fish Marketing Board, is that right?
A I sold
it at Grand Rapids. I don't
sell directly to the Fish Marketing Board. I sell it to the agent, which is
Grand Rapids Fishermen's Co-op.
Q Okay,
you sold it to -- you know, you delivered it at the Grand Rapids Fishermen's
Co-op?
A Yes.
Q To the
Co-op, to the Fishermen's Co‑op?
A Yes.
Q Who is
buying it on behalf of Freshwater Fish, correct?
A Correct.
Q None
of your catch, other than -- like all your catch was sold to the Co-op, who was
buying it on behalf of Freshwater Fish during those years, right?
A Yes.
Q So you
didn't sell any of that, of your catch to anybody on the reserve in the years
in issue?
A No.
[36] The Appellant clearly indicated by his answers that he knew that the
Co-op was acting as the agent for FFMC. As well the Appellant is a director of
FFMC and had been a director for the last few years. The Appellant also had
been a director of the Co-op. He also received weekly summary sheets showing
the amount of his catch for the week. The weekly summary sheets clearly
identified FFMC. It is clear that FFMC was disclosed as the principal. As a
result it seems to me that FFMC was the customer of the Appellant.
[37] All of the fish purchased by FFMC was shipped from the Co-op to Winnipeg. FFMC
then sold the fish to customers in Canada, the United States and other
countries.
[38] The Appellant also submitted that since FFMC (which is a corporation
that was formed by the Freshwater Fish Marketing Act, R.S.C. 1985, c. F-13) is, pursuant to section 14 of that statute, an agent of Her Majesty
in Right of Canada, that FFMC should be treated in the same manner as a Crown
agency and found to have its situs everywhere in Canada based on the
decision of the Supreme Court of Canada in Williams, supra. However it
seems to me that the context in which the statements were made by Gonthier J.
of the Supreme Court of Canada is relevant. In Williams the issue was
whether unemployment insurance benefits were exempt from taxation as a result
of the provisions of section 87 of the Indian Act. The comments of
Gonthier J. in relation to the situs of a Crown agency were as follows:
A - The
Test for the Situs of the Unemployment Insurance Benefits
39 Unemployment
insurance benefits are income replacement insurance, paid when a person is out
of work under certain qualifying conditions. While one often refers to
unemployment insurance "benefits", the scheme is based on employer
and employee premiums. These premiums are themselves tax-deductible for both
the employer and employee.
40 There
are a number of potentially relevant connecting factors in determining the
location of the receipt of unemployment insurance benefits. The following have
been suggested: the residence of the debtor, the residence of the person
receiving the benefits, the place the benefits are paid, and the location of
the employment income which gave rise to the qualification for the benefits.
One's attention is naturally first drawn to the traditional test, that of the
residence of the debtor. The debtor in this case is the federal Crown, through
the Canada Employment and Immigration Commission. The Commission argues that
the residence of the debtor in this case is Ottawa, referring to s. 11 of the Employment
and Immigration Department and Commission Act, S.C. 1976-77, c. 54 (now
R.S.C., 1985, c. E-5, s. 17), which mandates that the head office of the
Commission be located in the National Capital Region.
41 There
are, however, conceptual difficulties in establishing the situs of a
Crown agency in any particular place within Canada.
For most purposes, it is unnecessary to establish the situs of the
Crown. The conflict of laws is interested in situs to determine
jurisdictional and choice of law questions. With regard to the Crown, no such
questions arise, since the Crown is present throughout Canada
and may be sued anywhere in Canada.
Unemployment insurance benefits are also available anywhere in Canada, to any
Canadian who qualifies for them. Therefore, the purposes behind fixing the situs
of an ordinary person do not apply to the Crown, and in particular do not apply
to the Canada Employment and Immigration Commission in respect of the receipt
of unemployment insurance benefits.
42 This
does not necessarily mean that the physical location of the Crown is irrelevant
to the purposes underlying the exemption from taxation provided by the Indian
Act. However, it does suggest that the significance of the Crown
being the source of the payments at issue in this case may lie more in the
special nature of the public policy behind the payments, rather than the
Crown's situs, assuming it can be fixed. Therefore, the residence of the
debtor is a connecting factor of limited weight in the context of unemployment
insurance benefits. For similar reasons, the place where the benefits are paid
is of limited importance in this context.
(emphasis added)
[39] It does not seem to me that the comments of Gonthier J. in relation to
the situs of a Crown agency in the Williams case apply equally to
FFMC. As noted by Gonthier J. the “conflict of laws is interested in situs
to determine jurisdictional and choice of law questions”. Section 14 of the Freshwater
Fish Marketing Act provides that:
14. The
Corporation is for all purposes of this Act an agent of Her Majesty in right of
Canada.
[40] Section 83 of the Financial Administration Act, R.S.C. 1985, c.
F-11, provides in part that:
83. (1) In this Part,
"agent corporation" means a
Crown corporation that is expressly declared by or pursuant to any other Act of
Parliament to be an agent of the Crown;
[41] Section 98 of the Financial Administration Act, supra, provides
as follows:
98. Actions,
suits or other legal proceedings in respect of any right or obligation acquired
or incurred by an agent corporation, whether in the name of the Crown or in the
name of the corporation, may be brought or taken by or against the corporation
in the name of the corporation in any court that would have jurisdiction if the
corporation were not an agent of the Crown.
[42] Since the jurisdiction applicable for proceedings commenced by or
against FFMC would be determined as if FFMC were not an agent of the Crown, the
jurisdictional and choice of law questions would not be resolved in the same
manner for FFMC as for the federal Crown, through the Canada Employment and
Immigration Commission.
[43] As also noted by Gonthier J.:
This does not
necessarily mean that the physical location of the Crown is irrelevant to the
purposes underlying the exemption from taxation provided by the Indian Act.
[44] It seems to me that in this case the physical location of the Crown is
relevant. In this case the Appellant’s business is the sale of a product –
fish. The physical location of FFMC in Winnipeg is relevant as the product sold
by the Appellant is transported off the Reserve to the physical location of
FFMC in Winnipeg.
[45] In Bell v. The Queen, [2000] 3 C.T.C. 181, 2000 DTC
6365, Létourneau J. stated that:
50 As
the House of Lords said in Unit Construction Co. Ltd. v. Bullock,
[1960] A.C. 351, at page 366 per Lord Radcliffe and at page 372 per Lord Cohen:
"a company resides, for purposes of income tax, where its real business is
carried on... and the real business is carried on where the central management
and control actually abides"; see also Pet Milk Canada Ltd. v. Olympia
and York Developments, (1974), 4 O.R. (2d) 640 (Ont. Master).
[46] As noted in the agreed facts, the head office of FFMC is in Winnipeg (as
provided in the Freshwater Fish Marketing Act). Also as noted in the
agreed facts, the Board of Directors of FFMC meets six times during its fiscal
year in Winnipeg. It seems to me that in determining where FFMC
resides, it is important to determine where “the central management and control
actually abides”. Since the central management and control of FFMC
abides in Winnipeg, it seems to me that FFMC resides in Winnipeg, which
is not on the Reserve.
[47] As noted by La Forest J. in Mitchell v. Peguis Indian Band, [1990]
2 S.C.R. 85:
88 It
is also important to underscore the corollary to the conclusion I have just
drawn. The fact that the modern-day legislation, like its historical
counterparts, is so careful to underline that exemptions from taxation and
distraint apply only in respect of personal property situated on reserves
demonstrates that the purpose of the legislation is not to remedy the
economically disadvantaged position of Indians by ensuring that Indians may
acquire, hold, and deal with property in the commercial mainstream on different
terms than their fellow citizens. An examination of the decisions
bearing on these sections confirms that Indians who acquire and deal in
property outside lands reserved for their use, deal with it on the same basis
as all other Canadians.
(emphasis added)
[48] In Folster, supra, Linden J. stated that:
14 LaForest
J. characterized the purpose of the tax exemption provision as, in essence, an
effort to preserve the traditional way of life in Indian communities by
protecting property held by Indians qua Indians on a reserve. Section 87,
however, was not intended as a means of remedying the economic disadvantage of
Indians. Although a laudable goal, it is not for the courts to attempt to
achieve it by stretching the boundaries of the tax exemption further than they
can be supported on a purposive reading of the legislation. Where,
therefore, an aboriginal person chooses to enter Canada's
so-called "commercial mainstream"27, there is no
legislative basis for exempting that person from income tax on his or her
employment income.28 Hence, the requirement that the
personal property be "situated on a reserve". The situs principle
provides an internal limit to the scope of the tax exemption provision by tying
eligibility for the exemption to Indian property connected with reserve land.
Thus, as will be seen, where an Indian person's employment duties are an integral
part of a reserve, there is a legitimate basis for application of the tax
exemption provision to the income derived from performance of those duties.
(emphasis added)
[49] In Southwind v. The Queen, supra, Linden J. stated that:
14 According
to the Supreme Court in Mitchell, where an Indian enters into the
"commercial mainstream", he must do so on the same terms as other
Canadians with whom he competes. Although the precise meaning of this
phrase is far from clear, it is clear that it seeks to differentiate those
Native business activities that deal with people mainly off the Reserve, not on
it. It seeks to isolate those business activities that benefit the
individual Native rather than his community as a whole, recognizing, of course,
as Mr. Nadjiwan says, that a person benefits his or her community by earning a
living for his family.
…
17 In
concluding, it should be noted that section 87 does not exempt all Natives
resident on a Reserve from income taxation. The process of determining the tax
status of income earned by Natives on Reserves has become quite complex,
depending on a sophisticated analysis of a series of factors. It may appear to
some that inconsistencies exist in the treatment of the various cases, but each
of them depends on its unique facts. All we can do is evaluate the
factors and draw the lines, as best we can, between business income and
employment income that is situated on the Reserve and integral to community
life, and income that is primarily derived in the commercial mainstream, working
for and dealing with off-reserve people.
(emphasis added)
[50] It seems to me that it is important to recognize that in this case the
income arises as a result of the sale of a property – fish and not from the
provision of services (which is the subject of several cases dealing with
employment income). It seems to me in light of the comments of La Forest, J.
and Linden, J. noted above that it is important to determine whether the
Appellant, in selling his fish, was dealing with on-reserve people or
off-reserve people. In my opinion it is a very important factor in this case
that the Appellant sold his entire catch to FFMC who were located off the Reserve.
The fact that the Appellant would purchase ice, fuel and other supplies from
the Co-op does not change the identity of the person who purchased the
Appellant’s fish.
Where Decisions
Affecting the Business are Made
[51] The decisions affecting the business would be made both on the Reserve
and off the Reserve. Clearly when the Appellant was on Lake Winnipeg his
decision concerning where to place his nets in the water (which would
presumably be a very important decision in a fishing business) were made off
the Reserve.
Place Where the Payment is Made
[52] The Appellant was paid in two different ways. When the price to be paid
for the fish was initially set, the fishers (including the Appellant) would be
paid 85% of the estimated market price. Each week he would be paid by cheque
based on this 85% of the estimated market price and the quantity of fish that
were delivered to the Co-op. The Co-op paid the Appellant from the funds that
it had received from FFMC, and as noted above under the agreement with FFMC, that
the Co-op had agreed were being held in trust for the Appellant. After the
fishing season was completed and when the final market price was known, the
Appellant received his final payment directly from FFMC. FFMC dealt with the
Appellant on the same terms and in the same manner as it dealt with all other
fishermen, whether such person was an Indian (as defined in section 2 of the Indian Act) or not.
Location of a Fixed
Place of Business and of the Books and Records
[53] The location of the Appellant’s fixed place of business and the
location of his books and records were at his house on the Reserve. He would
store his boat and equipment during the off season at his house.
Residence of the Business’ Owner
[54] The Appellant resided on the Reserve.
Conclusion Based on
these Connecting Factors
[55] It seems to me that these connecting factors lead to a conclusion that
the Appellant earned his business income in the commercial mainstream. Of
particular importance, as noted by the Federal Court of Appeal in Recalma
and Southwind, is the place where the work was done and where the source
of income was situated. The Appellant in this case caught the fish off the Reserve,
spent most of his working time while carrying on his business during the
fishing season off the Reserve and sold his entire catch to FFMC (who were
located off the Reserve and who transported the entire catch off the Reserve as
soon as possible). None of the fish were sold on the Reserve. It would appear
that the product that was sold (fish) spent very little time on the Reserve.
[56] In Bell v. The Queen, [2000] 3 C.T.C. 181, 2000 DTC
6365 the Federal Court of Appeal held that the fishing income (which included
the income of the president, sole shareholder and sole director of the company
that employed the other appellants) was not exempt from taxation. Létourneau J.
made the following comments:
39 The
appellants submit, as an additional connecting factor, the benefit to the
Native community and life on a Reserve. As the argument goes, the appellants'
ability to fish and support themselves and their families in an activity which
is a traditional Native activity allowed for a continuation of the traditional
Native way of life in today's society. They find support for their submission
in the following passage from our colleague Linden J.A. in Folster, at
page 5323:
In my view,
when the personal property at issue is employment income, it makes sense to
consider the main purpose, duties and functions of the underlying employment; specifically,
with a view to determining whether that employment was aimed at providing
benefits to Indians on reserves (emphasis added by Létourneau J.)
40 I
want to emphasize at the outset that the benefit concept relied upon by the
appellants is not an independent, free-standing connecting factor, but rather
is a standard by which to evaluate the "nature of the employment"
factor. In Folster, the appellant worked for a hospital which attended to the
health needs of the Reserve community. It is clear in that case that the
hospital provided services to the people of the Reserve and that it is this
kind of benefit directly connected to, and resulting from, the employment that
our Court retained as a yardstick against which to measure the "employment"
factor. In McNab v. Canada, [1992] 2 C.T.C. 2547, at page 2551,
the Tax Court found that the claimant's work was for an employer whose sole
purpose was to benefit Indians on Reserves. Common to both these employments
was the fact that Indians on a Reserve benefitted from the actual work done. In
Amos et al. v. The Queen, 99 DTC 5333, our Court found that the employment
of Band members benefited the Reserve because there was an express agreement, between
the Band and the corporation who leased lands from the Band, that these leased
lands whose use was integral to the operation of the corporation's pulp mill
would be used to provide employment to Band members. Our Court found that the
"employment was directly related to the realization by the Band and its
members of their entitlements to the reserve land": Ibid., at p. 5335.
There is no such understanding in the present instance and, as previously
mentioned, the appellants represent only a small portion of the entire work
force of the Company.
41 There
is no doubt that the fact that the appellants drew a salary and brought it back
to the Reserve provided some economic benefits to the Reserve but it is
obviously not benefits of this nature that this Court sanctioned in Folster
and in Recalma, supra. Indeed, as this Court said in Southwind v.
The Queen, 98 DTC 6084, at page 6087 (F.C.A.), the phrase
"commercial mainstream" "seeks to isolate those business
activities that benefit the individual Native rather than his community as a
whole, recognizing, of course,... that a person benefits his or her community
by earning a living for his family". Otherwise, any employment located off
the Reserve, no matter how unconnected, would be seen as benefiting life on the
Reserve and, therefore, would attract the tax exemption. This is not the
purpose of section 87 of the Act which, as La Forest J. stated in Mitchell v.
Peguis Indian Band, [1990] 2 S.C.R. 85, at pages 130-131, is aimed not at
conferring a general economic benefit upon Indians, but rather at protecting
them against attempts by non-natives to dispossess them of the property which
they hold qua Indians, i.e., their land base and the chattels on that land
base.
42 Like
the Tax Court judge, I believe that the appellants are "engaged not
in a business that is integral to the life of the Reserve", but in a
business that is in the "commercial mainstream": Southwind
v. The Queen, supra, at page 6087 (F.C.A.). I agree with counsel for the
respondent that the appellants cannot remove themselves from that
"commercial mainstream" merely through asserting that, by earning a
living for an individual's family, they benefit the Native community.
43 The
appellants also submit that their employment goes beyond providing an economic
benefit to their Native community: it permits Band members to carry on their
traditional way of life, albeit in a modern context. In this regard, the Tax
Court judge found at page 15 of his decision that "there is no evidence
that the fishing activity of the Company which gives rise to the incomes of the
Appellants has any close connection with the Reserve, or any historic, social
or cultural connection with either the Band or the Reserve". In other
words, there was no evidence that the commercial fishing activity of the
Company, as opposed to the annual food fishery in which the appellants participated
to the benefit of the Band, was an activity closely connected with either the
Band or the Reserve. The appellants have not demonstrated to us that this
finding of fact is erroneous. In the absence of a proper factual foundation for
the appellants' allegation, we are left to speculate, and neither speculation
nor well-intended guesses are valid substitutes for real and probative
evidence.
44 Moreover,
in isolating as a connecting factor the maintaining and enhancing of the native
life on the Reserve as a means of supporting themselves, the appellants assume
and submit that paragraph 87(1)(b) of the Act has a second purpose: the tax
exemption therein aims at securing for Indians their right to enjoy the
benefits of their traditional ways of life such as hunting and fishing.
They claim that trade and commerce was not foreign to the members of the First
Nations and, therefore, that, in a modern context, the traditional Indian
activity of fishing, from which they derive the income necessary to pursue a
career that is consistent with their aboriginal identity, dictates that it be
performed in the commercial mainstream. Hence, they should be entitled to the
benefit of the tax exemption when fishing in the commercial mainstream.
45 The
short answer to the appellants' contention is, in my view, that it runs
contrary to the decisions of the Supreme Court of Canada in Williams and
Mitchell, supra, where the Court held that those Indians who acquire,
hold and deal with property "in the commercial mainstream" must do so
on the same terms as their fellow citizens. Happily or not, in our modern
society and context, income obtained from commercial fishing in the commercial
mainstream is taxable. Section 87 of the Act ought not to be given an
expansive scope by ascribing an overly broad purpose to it: see Union of New
Brunswick Indians and Tomah v. N.B. (Min. of Finance), (1998), 227
N.R. 92, at page 115 (S.C.C.); see also R. v. Lewis, [1996] 1
S.C.R. 921 where the phrase "on the reserve" was given a narrow
interpretation as the Court held that it did not mean "adjacent to",
but in or within the boundaries of the Reserve, and that it should receive the
same construction wherever used within the Act.
46 In
the end, I am satisfied, as the Tax Court judge was, that the appellants'
property, derived from commercial fishing with a private company in the
commercial mainstream had, to use the words of La Forest J. in Mitchell,
supra, at page 137, no "immediate and discernable nexus to the
occupancy of reserve lands".
(emphasis added)
[57] As noted by Sheridan J. in Dumont v. The Queen, 2006 DTC 2160 (affirmed by the
Federal Court of Appeal 2008 D.T.C. 6091):
The business
of fishing is common to both Indian and non-Indian communities.
Historical Evidence
[58] At the hearing before the Federal Court of Appeal in Bell,
supra, the appellants attempted to
file additional historical documents in relation to the tradition of fishing. Létourneau
J. made the following comments on the motion:
26 As a
matter of fact, the appellants asserted at the hearing, in response to a
question from the Bench, that the documents were tendered for the purpose of
establishing that the appellants were members of a coastal Indian Band which
had a tradition of fishing. They conceded that the documents, however, could
not establish that the appellants' Band had a tradition of commercial fishing
and that, in any event, they were not filed for that purpose. To the extent
that they are filed for the stated purpose, they are unnecessary because the
Tax Court judge accepted as a fact that coastal Indians fished as a way of
life. This is made clear in the following passage of his decision, at page 15,
when he was dealing with the food fishing activity of the Company:
The food fishery no doubt has its roots in the traditions of the coastal
Indian people.
What the judge
experienced difficulties with, however, is the fact that there was no evidence
of commercial fishing as a tradition.
…
29 The
fact that the documents submitted to us are unnecessary and beside the point is
sufficient to dispose of the motion. However, there is more. They are also
unhelpful for the following reasons.
…
32 Third,
the documents are of no assistance since it is not disputed that the commercial
fishing of the appellants and the Company they worked for took place outside of
the Reserve and we have no ways of determining, on the basis of these documents
alone, whether the fishing grounds referred to in some of these documents are
the location where the commercial fishing activity in issue was performed. In
any event, even if it were the same location, this fact cannot alter the nature
of the appellants' fishing which gave rise to their income.
(emphasis added)
[59] In this case both the Appellant and the Respondent filed expert’s
reports on the history of fishing in the Grand
Rapids area. The Appellant stated in the
written submissions filed by his counsel:
that
historical evidence is important for the following reasons:
1.
It is relevant to the issue as to whether the Appellant’s activity is
“integral to the life of the reserve”;
2.
It is relevant to the issue of whether the Appellant is benefiting his
community as a whole or just himself;
3.
It is relevant to a determination, on a purposive basis, as to whether
the property in question is “property of an Indian qua Indian”.
[60] The Respondent’s expert, in her report stated that:
Commercial
fishing did not develop in the Grand Rapids region until the 1880’s, after
Treaty 5 (1875).
[61] The Appellant’s expert, in her report, stated that:
Commercial
fishing, though a far cry from the spears and nets of the early peoples,
supplied their needs in the twenty-first century as it had for thousands of
years before that.
[62] The documents on which the Appellant’s expert based her report are
vague with respect to references to commercial fishing prior to the formation
of the Grand Rapids Reserve and the signing of Treaty 5 in 1875. It seems
obvious that the authors of the various documents written at that time were not
concerned with detailed analysis or the issue of whether the individuals, whose
descendents would eventually inhabit the Grand Rapids Reserve, were carrying on
a business of fishing. Given the geographic location of the Grand Rapids
Reserve it seems obvious that fishing would have been important to the people
living in that area but whether commercial fishing was carried on prior to 1875
is another matter.
[63] Most of the references to fishing prior to the 1880’s are simply
references to fishing or people living well from fishing (which could simply
mean that they ate what they caught). Dr. McCarthy, the appellant’s expert, in
referring to one of the bases for her report of fishing prior to 1875 stated as
follows during her examination:
Q: …Can you tell us, you're saying that fish and fish
products could be sold along the Saskatchewan River around the early contact
time. Could you tell us on what basis that you say that?
A I have a basis, but I should make clear when I say sell
that I don't mean they got cash for it. There was no cash. It was barter.
But it was customary in all of the Hudson's Bay posts, and I've read
many, many, many journals, which are very boring to read, but -- but the fish
is an important staple in the northern posts, as the buffalo was on the plains,
very similar, and the Hudson's Bay Company and the Norwesters would establish
their posts where there was a good fishery, because they lived on the fish.
Those who undertook the transport were usually in a hurry to cross
the portage and they had been probably travelling some time using pemican or
dried food. It just -- I believed that it would have been an obvious way
for the people who had surplus fish, especially the oil of the sturgeon, it's
very valuable to increase the food value, and fresh fish would be an enormous
help to them, a change in their diet.
(emphasis added)
[64] This, however, is simply speculation on the part of Dr. McCarthy of
what might have taken place and not evidence of an actual commercial fishery.
[65] With respect to another document, the following exchange took place
during the cross examination of Dr. McCarthy:
Q So right at the bottom of that page you say, you write,
"Those who lived at Grand Rapids also sold fish and oil to travellers and passing boat brigades. This
was not always done willingly. According to Emile Petitot, a priest of the
Oblates of Mary Immaculate, when the HBC boats on which he was travelling in
1862 came in sight, the Cree women ran to hide their sturgeon in the woods.
Meanwhile the men tried to distract the Metis boatmen by offering to sell them poles
to be used in the passage of the rapids. Instead the boatmen increased their
speed, landed and took the fish, although the Cree protested that they were
destitute and had no fish to sell".
I mean I put it to you that this source, this is the source that you
have about that they could sell their surplus fish?
A H'mn, h'mn.
Q That, in fact, that source shows that the fish was taken
without the consent of the Indians, would you not agree with that?
A Not in that sense, because they complained that they had
no fish to sell, which I deduced meant that they had been in the habit of
selling, or trading it basically, but in that particular year the fish had
failed and yet the Metis boatmen were accustomed to getting the fish, therefore
they took it.
[66] Her conclusion that the native people would sell fish is again based on
speculation, not evidence. In this case it is based on a negative statement
that they did not have any fish to sell.
[67] The following exchange also took place between counsel for the
Appellant and Dr. McCarthy:
Q What about, do we have any knowledge about -- was there
any -- at some point in time the fishery changed, right, the nature of the
fishery changed, did it not? I'm talking about the latter part of the
nineteenth century.
A Well, yes, commercial fishing established there by the
1880s, in the middle 1880s.
[68] In the Appellant’s written submission, counsel for the Appellant stated
as follows:
The nature of
the activity is fishing, which, in one form or another, Aboriginal peoples in
the Grand Rapid areas have been doing for least 250 years. Commercial fishing, no
matter how that phrase is defined, has been undertaken by members of the Grand Rapid
Band since at least the last 120 years. The irresistible inference from
reviewing Dr. McCarthy's and Dr. Lovisek’s reports, combined with the testimony
of Albert Ross and Ronald Ballantyne, is that commercial fishing has been done
more or less continuously, and has been important to, the Grand Rapids Band
since the 1880’s.
[69] I accept the report of the expert for the Respondent with respect to
her conclusion that commercial fishing did not commence in the Grand Rapids
area until the 1880’s, a conclusion with which the Appellant concurs as noted
above. This was after the formation of the Grand Rapids Reserve in 1875. A
determination of whether an activity is (for the purposes determining whether
the income of the Appellant is situated on a reserve) integral to the life of a
reserve should not be based on an activity that commenced after the formation
of the reserve.
[70] If the Appellant is correct that any activity started after the
formation of the reserve could be “integral to the life of the Reserve” if it
is carried on for a long period of time, then a new activity started now (the
income from which would be taxable) would cease to be taxable after the
activity has been carried on for a number of years. One obvious problem with
the position of the Appellant is defining the number of years that would be
required to determine that the activity has qualified as “integral to the life
of the Reserve”. In any event it does not seem to me that the exemption under
section 87 of the Indian Act was intended to apply to convert activities
that are started after the formation of the reserve and that would be taxable
into activities that are not taxable only because the activity is carried on
for some time.
[71] With respect to the issue of “whether the Appellant is benefiting his community
as a whole or just himself”, it is not clear how the historical evidence is
relevant in relation to this issue. This issue is resolved by looking at the
Appellant’s activities, not those of individuals who lived and worked many
years ago.
[72] The Appellant, in relation to this question, submitted evidence of how
he spends his money at businesses located on the Reserve. In Bell, supra,
Létourneau J. stated that:
41 There
is no doubt that the fact that the appellants drew a salary and brought it back
to the Reserve provided some economic benefits to the Reserve but it is
obviously not benefits of this nature that this Court sanctioned in Folster
and in Recalma, supra. Indeed, as this Court said in Southwind v.
The Queen, 98 DTC 6084, at page 6087 (F.C.A.), the phrase
"commercial mainstream" "seeks to isolate those business
activities that benefit the individual Native rather than his community as a
whole, recognizing, of course,... that a person benefits his or her community
by earning a living for his family".
[73] The fact that the Appellant spent money on the reserve, as noted in the
decision of the Federal Court of Appeal in Bell, supra, is not the kind of benefit that will result in his
income being exempt from taxation.
[74] With respect to the “determination, on a purposive basis, as to whether
the property in question is property of an Indian qua Indian”, Linden J.
in Folster v. The Queen, supra, after referring to the connecting
factors test as set out in Williams, stated that:
16 This
new test was not designed to extend the tax exemption benefit to all Indians. Nor
was it aimed at exempting all Indians living on reserves. Rather, in suggesting
reliance on a range of factors which may be relevant to determining the situs
of the property, Gonthier J. sought to ensure that any tax exemption
would serve the purpose it was meant to achieve, namely, the preservation of
property held by Indians qua Indians on reserves so that their traditional way
of life would not be jeopardized.
(emphasis added)
[75] It seems to me that the reference to their traditional way of life
would not include a way of life that commenced after the formation of the
reserve. Therefore commercial fishing as a way of life (which did not commence
until the 1880’s) would not be a traditional way of life to which Linden J. was
referring in Folster.
[76] It should also be noted that the issue in this case is not whether the
Appellant had the right to fish but whether his income from fishing is exempt
from tax. There is no dispute that the Appellant had the right to catch the
fish that were sold to FFMC.
[77] It does not seem to me that the historical evidence related to
commercial fishing carried on from the Grand Rapids Reserve in this case is a
connecting factor or affects any of the connecting factors. The Appellant in
this case caught the fish off the Reserve, spent most of his working time while
carrying on his business during the fishing season off the Reserve and sold his
entire catch to FFMC (who were located off the Reserve and who transported the
entire catch off the Reserve as soon as possible). None of the fish were sold
on the Reserve. In my opinion, the Appellant’s fishing activity was carried on
in the commercial mainstream and his income from this activity does not qualify
for the exemption pursuant to section 87 of the Indian Act.
[78] As a result, the appeals are dismissed, with costs.
Signed at Ottawa, Ontario, this 16th day of June, 2009.
“Wyman W. Webb”
Schedule “A”
The
following are the facts as agreed upon by the parties:
1. The Appellant is
an Indian as defined in section 2 of the Indian Act and a member of the
Grand Rapids First Nation. Grand Rapids First Nation is a signatory to Treaty
Number 5.
2.
The Grand Rapids Reserve is located on the south shore of the
Saskatchewan River, where the river empties into Lake Winnipeg. The Town of Grand
Rapids is located across the river from Grand Rapids Reserve.
3.
According to DIAND records the number of Grand Rapids Band members on
the Grand Rapids Reserve as of December 31, 2001 was 702. According to a 2001
Census, the population of the Town of Grand Rapids was 355.
4.
During the taxation years at issue the Appellant resided on the Grand
Rapids Indian Reserve. The Appellant has resided at 218 River Road, Grand
Rapids Reserve, continuously since 1976.
5.
The Appellant has resided on the Grand Rapids Indian Reserve all of his
life.
6.
The Appellant is a self-employed fisherman and has been a self-employed
fisherman since 1976.
7.
During that taxation years at issue all of the fishing done by the
Appellant was done on Lake Winnipeg.
8.
The Grand Rapids Reserve is adjacent to Lake Winnipeg.
9.
The Appellant fishes on waters situated off reserve, the locations
marked with X1 and X2 on Exhibits 4 and 5, respectively. During the years in
question the Appellant split his time fishing between these two locations.
10.
The Appellant fishes during the summer fishing season, starting June 1
and ending in the third week of July.
11.
The fall fishing season starts in the first week of September and lasts
until the third week of October.
12.
The Appellant did not fish during the winter fishing season in the tax
years in question.
13.
The Appellant is a member of the Grand Rapids Fishermen’s Co-op.
14.
The Co-op is located on the Grand Rapids Reserve.
15.
The Co-op is owned by its members. The Co-op has approximately 104
members. Approximately 99 of the members are Treaty Indians.
16.
There are five members who are of mixed aboriginal ancestry who live in
the Town of Grand Rapids.
17.
The Co-op provides gas, oil and nets and other fishing equipment on a
for credit basis or for sale at cost.
18.
The Co-op maintains its books and records on the Grand Rapids Reserve.
19.
The Co-op employs its own employees on the reserve, including a book
keeper and individuals who grade the fish.
20.
The Co-op purchases fish as agent for Freshwater Fish. All of the
Appellant’s fish catch is purchased by the Co-op on behalf of Freshwater Fish.
21.
All of the Appellant’s fish catch purchased by the Grand Rapids
Fishermen’s Co-op is delivered by the Co-op to Freshwater Fish at its head
office in Winnipeg.
22.
None of the Appellant’s fish catch is sold directly by the Appellant to
residents of the reserve.
23.
The Appellant sometimes uses a fishing camp located south of Long Point
and identified at X3 on Exhibit 5.
24.
The Appellant’s fishing equipment and supplies are located at his
residence on the reserve.
25.
The Appellant maintained his business books and records on the reserve.
26.
The Appellant prepared and maintained his boats, nets and motors on the
reserve before, during and after the fishing season.
27.
The Appellant received or earned business income, being self-employment
income from fishing, in the amount of $13,164 in the 2001 taxation year.
28.
The Appellant received or earned business income, being self-employment
income from fishing, in the amount of $18,238 in the 2002 taxation year.
29.
The Appellant does his banking at the Median Credit Union on the Grand
Rapids Reserve.
30.
The Appellant deposits the cheques that he receives from the Co-op for
fishing at the Median Credit Union on the Grand Rapids Reserve.
31.
The Appellant owns two quotas, which provide the Appellant with a right
to fish a certain number of fish of a certain species in a certain area. These
quotas are owned by the Appellant.
32.
The Grand Rapids Fisherman’s Co-operative Ltd. was incorporated on June
1, 1962, prior to the creation of Freshwater Fish in 1969. The Co-op’s by-laws
are agreed document 41. The Co-op’s 2000 and 2001 Financial Statements are
agreed documents 34 and 35, respectively. The Co-op’s constating documents are
collectively listed as agreed documents 36 to 40.
Freshwater Fish in general
33.
The Freshwater Fish Marketing Corporation (“Freshwater Fish”) was
established in 1969 by the Freshwater Fish Marketing Act, R.S., 1985, c.
F-13 for the purpose of marketing and trading in fish, fish products, and fish
by-products in and outside of Canada. The objectives are to purchase all fish
legally caught and offered for sale to Freshwater and to stabilize the prices
for fish on behalf of fishers.
34.
Freshwater Fish is a non-profit and self-sustaining agent Crown
corporation.
35.
Freshwater Fish is the buyer, processor and marketer of freshwater fish
from Manitoba, Saskatchewan, Alberta, Northwest Territories, and part of
Northwestern Ontario.
36.
The purpose and powers of Freshwater Fish are as set out in sections 7
and 8 of the Freshwater Fish Marketing Act.
37.
Freshwater Fish has the exclusive right in Manitoba to trade and market
the products of the commercial fishery on an interprovincial and export basis
under ss. 20(1) of the Freshwater Fish Marketing Act.
38.
The Freshwater Fish Marketing Act mandates Freshwater Fish to
purchase all commercially caught fish in Manitoba, Saskatchewan, Alberta, The
Northwest Territories and part of Northwestern Ontario that is offered to it
for sale. However, fishers may also sell to final consumers if they so chose.
39.
Freshwater Fish’s mandate also extends to creating an orderly market,
promoting international markets, and increasing fish trade and returns to
fishers (ss. 22(1) of the Freshwater Fish Marketing Act).
40.
Freshwater Fish purchases fish caught on Lake Winnipeg through a number
of private agents and co-operatives located along Lake Winnipeg.
41.
Most of the fish received by Freshwater Fish comes from Lake Winnipeg.
42.
Freshwater Fish has 31 contracted agents and three corporate agencies
grading and purchasing fish at 56 delivery points.
43.
The relationships between private agents and co-operatives and
Freshwater Fish are governed by written agency agreements.
44.
The Grand Rapids Fishermen’s Co-op is an association or co-operative of
fishers located on Grand Rapids Reserve.
45.
The relationship between the Grand Rapids Fishermen’s Co-op and
Freshwater Fish is governed by an agency agreement (see Exhibit A1, Tab 21).
46.
The agreement between Freshwater Fish and the Grand Rapids Fishermen’s
Co-op is the only instrument that governs the relationship between the parties.
47.
The Grand Rapids Fishermen’s Co-op acts as agent for Freshwater Fish in
purchasing fish at Grand Rapids under the above-noted agency agreement. It
does not act as agent for any other purchasers of fish.
48.
Freshwater Fish purchases all of the fish that are sold at the Grand
Rapids Fishermen’s Co-op.
Payments
49.
The Freshwater Fish Marketing Act entitles Freshwater Fish to
establish a payment structure that provides initial and final payments to the
fishers under a “pool” system where receipts and costs are allocated or
“pooled” by fish species to determine final payments.
50.
Generally, initial prices are set for each species by estimating its market
value, subtracting its projected processing and operating costs and withholding
a contingency amount.
51.
The fishers receive initial payments by cheque from the Co-op, from
money that is sent in trust from Freshwater Fish to the Co-op’s bank account.
52.
The end of the week, insofar as the Co-op and Freshwater Fish are
concerned, is Saturday. Data is transmitted from the Co-op to Freshwater Fish
with respect to the amount of payments that will be made to fishers. Money is
transferred to the Co-op’s bank account on the Wednesday.
53.
Fishers are paid every week from monies that are transferred from
Freshwater Fish to the Co-op. The Co-op prints, executes and issues cheques on
reserve to fishers. The fishers come to the Co-op to pick up their cheques.
Final payments
54.
At the beginning of each fiscal year, Freshwater fish estimates the
market price for fish for the coming year.
55.
During the fishing season, as the fishers deliver their catches,
Freshwater Fish pays the fishers 85% of the estimated market price.
56.
At the end of the fiscal year, after which the actual market price for
fish is known, the fishers are paid the difference between 85% of the estimated
market price and the actual market price.
57.
For example, if the estimated price for pickerel is $10 per pound, the
fishers would receive regular payments of $8.50 per pound. If, at the end of
the year, the actual market price was $9.50 per pound, the fishers would
receive a reconciliation cheque for $1.00 per pound of pickerel caught in that
year.
58.
The year end payments are made to the fishers in November of each year,
by way of cheques printed at Freshwater Fish in Winnipeg.
59.
The final payment is made from Freshwater Fish to the fishers directly.
60.
After the final payments are established, any remaining income for the
year is recorded by Freshwater Fish as retained earnings.
Freshwater
Fish and the Co-op
61.
The grading, weighing, ice packing, categorizing species, and accounting
of the fish is done at the Grand Rapids Fishermen’s Co-op.
62.
The Co-op also provides gas, oil and nets to fishers on a credit / debit
basis.
63.
Freshwater Fish pays the Co-op $.33 per kilogram of fish that is
delivered to Freshwater Fish. This amount is inclusive of employee salaries
for the packing, weighing, grading and administration services used to run the
Co-op.
64.
All money used by the Grand Rapids Fishermen’s Co-op to pay the fishers
for fish caught is provided by Freshwater Fish.
65.
All of the Appellant’s self employment income from fishing in the 2001
and 2002 taxation years was received from Freshwater Fish through its agent,
the Grand Rapids Fishermen’s Co-op.
66.
Employees of the Co-op are paid by the Co-op.
67.
Freshwater Fish has no employees at the Grand Rapids Fishermen’s Co-op.
The Co-op employs approximately three to six employees depending upon the
season.
68.
David Hourie is an employee of the Grand Rapids Fishermen’s Co-op. Mr.
Hourie sorts and grades the fish with the help of other employees of the
Co-op. Mr. Hourie is paid $.05/$.06 per kilogram of fish he grades. David
Hourie is a Treaty Indian and lives on Grand Rapids Reserve.
69.
The grading process involves going through each fish separately and
labelling them as either “good” or “bad”. The bad fish are discarded and the
good fish are then sorted by size and species and daily catch records are
prepared.
70.
A daily catch record is an official receipt, prepared at the Co-op,
detailing the amount of fish sold as well as the species and the price paid.
71.
Freshwater Fish pays for the fish based on the size and species (see
Exhibit A1, Tab 19).
72.
A trucking company, Gardewine North, hauls all the fish from the Grand
Rapids Fishermen’s Co-op to Freshwater Fish in Winnipeg.
73.
When the fish arrives at Freshwater Fish in Winnipeg it is filleted,
frozen whole or ground up.
74.
At Freshwater Fish all fish species are divided up into different pools
for marketing purposes.
Marketing
of fish
75.
Freshwater Fish markets fish both interprovincially and internationally.
76.
Approximately 80% of the fish from Freshwater Fish is sold outside of Canada.
77.
Freshwater Fish markets most of its fish into the United States.
78.
Freshwater Fish is the largest supplier of whitefish in Finland,
whitefish caviar in Sweden and Finland, and northern pike in France.
79.
Freshwater Fish has an internal sales and marketing department.
80.
There are two different ways Freshwater Fish markets its fish. The
first is through direct sale to a major chain (i.e., Costco). The second is
through the use of brokers.
81.
In the Unites States Freshwater Fish has brokers in Chicago, New York,
Michigan and Ohio, Minnesota, North Dakota and Wisconsin.
82.
Freshwater Fish competes in the international markets against other fish
suppliers. It competes against other fresh water fish, seafood and protein
products. Major Canadian market competition is from the Great Lakes Region in Canada,
such as Presteve Fish Company and the Great Lakes Fishing Company. It also
competes against seafood products as Norwegian Salmon and Icelandic Cod
suppliers and other protein products such as beef and chicken.
83.
In 2003, Freshwater Fish retained Probe Research Inc. to conduct a
questionnaire of the fishers who provide fish to Freshwater Fish.
Approximately 3,500 questionnaires were sent out to 3,500 fishers in Western
Canada and a small part of Ontario. These questionnaires contained over 100
questions and the broad objective of these questionnaires was to obtain a
better understanding of the nature and demographics of fishers who supplied
fish to Freshwater Fish. Participation in this questionnaire was voluntary.
Out of 3,500 questionnaires, 800 were returned.
Operating
Mind
84.
Freshwater Fish’s head office is located in Winnipeg, Manitoba pursuant
to section 13 of the Freshwater Fish Marketing Act.
85.
Within Manitoba, Freshwater Fish also has offices in Selkirk, Riverton,
and The Pas. Freshwater Fish also has offices located in Saskatchewan and Alberta.
86.
Freshwater Fish is governed by a Board of Directors, consisting of 11
Directors, including the President and the Chief Executive Officer. Currently,
six of these Directors are aboriginal. Currently, the Appellant is a
Director. He has been a Director for at least four and a half years.
87.
All Board of Directors positions are federal Order-in-Council
appointments, with five appointed on recommendation of the participating
provincial governments.
88.
The Board of Directors meets six times during its fiscal year in Winnipeg,
Manitoba.
89.
The quantity and species of fish that can be commercially fished is
managed by a quota system.
90.
In Lake Winnipeg, each licensed fisher can obtain up to a maximum of
four to six individual quota entitlements (depending upon the residence of the
fisher). An individual quota entitlement means a property interest of a fisher
in a right to fish a certain quantity of one or more species of fish, in a
particular area and for a particular season, for commercial purposes [See s. 32
of The Fisheries Act (Manitoba).] A quota entitlement gives a fisher
a proprietary right of access to fish for three species of fish. Grand Rapids
Fishers can own up to four quota entitlements.
91.
The Provincial Department of Manitoba Water Stewardship is responsible
for managing the quota system.
92.
Lake Winnipeg is divided into fishing zones. Zones are demarcated by
lines connecting geographical features, and these zones are labeled by letters
(example A, B, C, etc.). A commercial fisher residing in Grand Rapids can
fish, pursuant to his quota, in zones B, C or G in the summertime; zones E or H
in the fall time; and zones F or C in the wintertime. These zones contain the
permissible areas to commercially fish for a person owning quota in Grand
Rapids. The location of these zones are demarcated on the attached map.
93.
The purpose of the residency requirement for individual quota
entitlements is to maintain a wide distribution of economic benefit to
communities, particularly remote communities, around Lake Winnipeg.
94.
Quota entitlement is dependent on residency. However, once quota is
acquired in a certain area an individual need not continue to be resident of
that area to continue holding the quota.
95.
Individual quota entitlements are transferrable and, subject to
regulation, can be bought and sold by individual fishers. It may also be
pledged as security. (See s.34(4) of The Fisheries Act (Manitoba).)
96.
Individual quota entitlements can be quite valuable and may be sold for
tens of thousands of dollars each. Currently, a fisher residing in Grand
Rapids could sell his individual quota entitlements for a maximum of
approximately $150,000.
97.
No person engaged in commercial fishing shall, unless authorized by
license, fish by means of a net in any lake within 1.5 kilometers of the
location where a stream or river enters the lake. (See s. 51, Manitoba Fishing
Regulations, 1987 (SOR187-509).)
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