Date:
20130626
Docket: A-207-09
Citation: 2013 FCA 171
CORAM: DAWSON J.A.
TRUDEL
J.A.
STRATAS
J.A.
BETWEEN:
FRED KELLY
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
STRATAS J.A.
A. Introduction
[1]
This
is an appeal from the judgment of the Tax Court of Canada (per Rip
C.J.): 2009 TCC 189. The Tax Court dismissed Mr. Kelly’s appeals from
assessments made under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) for the taxation years 1994-2003
inclusive. It found that Mr. Kelly’s business income in those taxation years
was not “personal property situated on a reserve” under section 87 of the Indian
Act, R.S.C. 1985, c. I-5 and, thus,
exempt from taxation.
[2]
In
reaching its decision, the Tax Court did not have the benefit of two recent
decisions of the Supreme Court of Canada concerning section 87 of the Act: Bastien
Estate v. Canada, 2011 SCC 38, [2011] 2 S.C.R. 710 and Dubé v. Canada,
2011 SCC 39, [2011] 2 S.C.R. 764.
[3]
Of
the two cases, Bastien is the more jurisprudentially significant. Dubé
is best regarded as a companion case, useful in that it sheds light on some of
the principles set out in Bastien. As a result, these reasons will refer
more to Bastien and the principles set out in it.
[4]
At
paragraph 28 of Bastien, the Supreme Court observed that nineteen years
had passed since its last significant section 87 case, Williams v. Canada,
[1992] 1 S.C.R. 877. Since that time, this Court and the Tax Court have tried
to follow its principles, fleshing them out through practical application, and,
to some extent developing the law beyond Williams. Given the passage of
time and the evolution of the section 87 jurisprudence, the Supreme Court in Bastien
considered it “timely to restate and consolidate the analysis that should be
undertaken in applying the [section] 87 exemption to interest income” and other
types of intangible property: Bastien, at paragraph 20. In the course of
its reasons, it rolled back developments fashioned by this Court and the Tax
Court. In particular, the Supreme Court cast doubt on this Court’s
decision in Recalma
v. Canada
(1998), 158 D.L.R. (4th) 59 (F.C.A.) and a number of cases following it – cases
that, in the case at bar, the Tax Court in this case took to be good law: see
the Tax Court’s reasons at paragraphs 31-38.
[5]
Therefore,
as a result of Bastien, and as will be seen in these reasons, some of the
reasoning of the Tax Court, central to its decision, cannot be sustained. Accordingly,
I would allow the appeal and set aside the Tax Court’s judgment.
[6]
In
my view, out of fairness to the parties who may have cast their cases in
reliance upon certain cases, now discredited, and bearing in mind the importance
to aboriginal peoples of the right expressed in section 87 of the Indian Act,
I propose that this Court remit the matter to the Tax Court so that the parties
have an opportunity to adduce new evidence responsive to the legal tests set
out in Bastien.
[7]
In
argument before us, the parties disagreed concerning how Bastien should
be interpreted and applied. We received full submissions on this. Indeed, Bastien
is complex and requires careful interpretation. We would do the parties no
service by sending them back to the Tax Court without guidance.
[8]
Therefore,
in these reasons, I shall offer some guidance so that the Tax Court’s redetermination
proceeds in accordance with proper principle.
B. The
basic facts and the Tax Court’s decision
[9]
The
reasons of the Tax Court provide a full account of the facts of this case as
they stand at the present time. However, in light of the proposed disposition of
this Court – namely the return of the matter to the Tax Court for
redetermination – the factual record before the Tax Court may alter. Therefore,
I will give only a short summary of what the Tax Court has found to date in
order to provide a context for these reasons.
[10]
Broadly
put, the Minister has contended in this Court and in the Tax Court that in the
taxation years in question Mr. Kelly was just an ordinary advisor, consultant or
employee performing important services for reserves in return for business
income. That alone does not trigger the section 87 exemption. The Minister also
emphasized the large amount of time Mr. Kelly has spent off-reserves in
generating his business income. In this regard, the Minister relied strongly
upon the pre-Bastien decision of Akiwenzie v. Canada, 2003 FCA
469.
[11]
On
the other hand, Mr. Kelly has contended he is far removed from an ordinary
advisor or consultant. In his view, his services are quite special and have a
poignant and intimate relationship to reserves’ spirituality, culture,
language, history, community pride, self-respect and mode of life. In Mr.
Kelly’s view, in light of this, his business income is located on reserves and
so it was exempt under section 87.
[12]
The
Tax Court concluded that the income earned by Mr. Kelly from his services was
not exempt under section 87.
[13]
However,
at least insofar as its factual findings were concerned, the Tax Court agreed
with some of Mr. Kelly’s submissions. The Tax Court found that Mr. Kelly has
“unique qualifications, skills and experience” in the area of “traditional strategic
planning and traditional governance.” He renders services aimed at addressing
“in a holistic manner the social, cultural, economic and political spheres and
issues of traditional life on the reserves,” to First Nations’ “leadership,
institutions and organizations that are based on reserves.” See the Tax Court’s
Reasons, paragraphs 2, 4 and 6.
[14]
As
a member of Medewe’in, the Sacred Law and Medicine Society of the
Anishinaabe, and employing his knowledge of language, history, ceremonies and
spiritual matters, Mr. Kelly renders services almost exclusively to reserves
through “conceptualizing, drafting, analysing, explaining, translating,
consecrating and teaching…traditional concepts, including orders of Anishinaabe
law.” This work includes a variety of unique spiritual and cultural activities,
ranging from teaching the Anishinaabe language to healing ceremonies for the
survivors of residential schools. See the Tax Court’s Reasons, paragraphs 4,
and 11-13.
[15]
The
Tax Court found Mr. Kelly’s services, performed personally by him, to be “invaluable.”
They are “entrenched in the traditional, social and cultural integrity of life
on reserves,” and “promote the preservation and furtherance of the traditional
way of life on reserves,” benefiting “Native communities as a whole.” In this
one way, the connection between Mr. Kelly’s services and the reserves “cannot
be overemphasized.” See the Tax Court’s Reasons, paragraphs 18, 47(f) and 51.
[16]
The
Tax Court noted Mr. Kelly does provide some services to off-reserve clients. However,
he is not seeking the section 87 exemption for business income received from
off-reserve clients. He seeks it only for the business income from his clients
located on reserves. The Tax Court found that although Mr. Kelly had some
off-reserve clients, this did not “detract from the overall nature of the business,”
which was aimed at the reserves. See the Tax Court’s Reasons, paragraph 17.
[17]
However,
despite these factual findings, the Tax Court found that Mr. Kelly was not
entitled to the exemption under section 87. There were other important factual
findings. In the Tax Court’s view, these were determinative.
[18]
The
Tax Court found that although Mr. Kelly’s work was “of great value to
preserving [the] traditional way of life [of] Indian communities,” one “cannot
ignore the manner in which [Mr. Kelly’s] business was operated.” His business
was carried on “to a very large extent” off reserves.
[19]
Indeed,
Winnipeg was “the centre or nucleus of his business operations” and to some
extent “he carried on his business as any other consultant would.” Most of the time
Mr. Kelly was physically present outside of reserves, often in Winnipeg where his home, office, books and records were located. Mr. Kelly’s business
decisions occurred in Winnipeg, not on reserves. Any research or development
necessary for his work was done at his Winnipeg home. Some consultations with
clients happened at his Winnipeg home. Payments for his services were received
at his Winnipeg home and he kept his money in off-reserve banks. See Reasons,
paragraphs 52 to 54.
[20]
The
Tax Court concluded that despite the usefulness of his work for reserves, Mr.
Kelly was “carrying on business as any other Canadian in a commercial
mainstream” (at paragraph 54). As will be seen in more detail below, it is fair
to say that the Tax Court placed considerable emphasis on Mr. Kelly’s presence
in the “commercial mainstream.” It found that as soon as the money paid to Mr.
Kelly “left a reserve” it “entered the economy off the reserve” and “ceased to
have anything to do with a reserve” (at paragraph 57). The Tax Court added there
was “no nexus between the business income received by Mr. Kelly and the
occupancy of reserve lands by him personally” (at paragraph 57).
[21]
Mr.
Kelly appeals to this Court.
C. Analysis
(1) The
standard of review
[22]
In
this Court, neither party has attacked the Tax Court’s findings of fact. The
only issue is the Tax Court’s identification and weighing of the factors under
section 87 of the Act, seen in light of Bastien, supra, and Dubé,
supra, released afterward.
[23]
In
Her Majesty the Queen v. Robertson, 2012 FCA 94, this Court considered
an appeal from a decision of the Tax Court concerning section 87 of the Act where,
as here, the Tax Court did not have the benefit of Bastien and Dubé.
This Court reviewed the Tax Court’s identification and weighing of the
connecting factors on a standard of correctness: Robertson, at paragraph
34. In the case at bar, no either party has urged upon us a different standard.
Here, as in Robertson, some of the reasoning of the Tax Court cannot be
sustained post-Bastien. This necessitates a de novo review.
Therefore, I shall proceed on the basis that correctness is the proper standard.
(2) The
Supreme Court’s recent decisions in Bastien and Dubé
[24]
In
Robertson, supra at paragraphs 33-34, this Court has recognized Bastien
and Dubé “in some respects modified the previous law” and “reset
the previous analytical framework in some significant respects.” In
particular, the Supreme Court addressed the following:
a. the
methodology to be followed in section 87 cases;
b.
the
purposes lying behind section 87; and
c. the
factors that, in conjunction with the purposes that lie behind section 87, the
Court must consider when determining whether the section 87 exemption applies.
It is best to discuss these three
areas as part of an overall enumeration of the basic propositions set out in Bastien.
[25]
While
I have identified seven basic propositions, it is important to stress that what
follows is not necessarily a comprehensive list of matters to be considered. In
Bastien, the Supreme Court stressed that it was important to “preserve
the flexibility of the case by case approach” (at paragraph 19). It follows
that no exhaustive set of propositions can be enumerated.
– I –
[26]
Always
implement the statutory language. In Bastien, supra, the
Supreme Court reminds us that the specific language of section 87 guides our
analysis throughout. That language tells us that the section 87 exemption
applies only to “the personal property of an Indian or a band situated on a
reserve.”
[27]
Therefore,
here is the question we must keep front of mind throughout our analysis: is the
property alleged to be exempt under section 87 situated on a reserve?
[28]
In
Bastien, at paragraph 15, the Supreme Court admits that this question
can cause “difficulty,” especially where “non-physical property generated by a
transaction, such as the payment of benefits” or the receipt of income, is
involved.
[29]
Some
might not think of benefits or income as property that has a specific location.
Nevertheless, Bastien confirms such non-physical property can qualify as
“property…situated on a reserve” under section 87.
[30]
Despite
the “type of property or the difficulty of ascribing to it a location,” the Court
must still try “to implement the statutory language.” Our objective throughout
is to “focus on whether the property is situated on a reserve.” See Bastien,
at paragraph 15.
– II –
[31]
In
cases of non-physical property, certain factors, known as connecting factors,
are useful indicia of location. Recognizing the difficulty of determining
the location of non-physical property, such as the payment of benefits or the
receipt of income, the Supreme Court has suggested certain factors as useful
indicia of location. In the jurisprudence, these are described as “connecting
factors”: Bastien, supra at paragraph 16, citing Williams,
supra.
– III
–
[32]
The
relevance and weight of the connecting factors depends on the type of property,
the nature of the taxation of the property and the purposes behind section 87. The
general methodology is to identify potential connecting factors and consider
their relevance and weight. This is done with due consideration to the “purpose
of the exemption, the type of property and the nature of the taxation of the
property.” This triplet is repeated throughout the majority reasons in Bastien,
supra and, thus, must be seen as lying at the core of the analysis that
must be conducted: see paragraphs 18, 20, 42 and 43. This triplet is also
repeated throughout the companion case of Dubé, supra: see
paragraphs 12, 14, 20 and 31.
[33]
At
various other places in Bastien, the Supreme Court sheds more light on this.
It emphasizes that while there are many potential connecting factors, the
relevance and weight of a particular connecting factor depends upon the particular
facts. For this reason, no simple, standard test can be used to determine the
location of intangible property such as benefits or income.
[34]
Instead,
“potential relevant connecting factors have different relevance [and weight] depending
on the categories of property and the types of taxation in issue”: Bastien,
at paragraph 18. For example, in Williams, supra at page 892, the
Supreme Court stated that “connecting factors may have different relevance with
regard to unemployment insurance benefits than in respect of employment income,
or pension benefits.”
[35]
Elsewhere
in Bastien, the Supreme Court emphasizes that the purposes behind the
exemption also affect the relevance and weight of a particular connecting
factor. In its words, “[a] purposive analysis must inform the court’s approach
to weighing the connecting factors”: Bastien, at paragraph 25.
[36]
In
this regard, in Bastien, at paragraph 18, the Supreme Court reaffirms the
approach in Williams. The approach in Williams was to consider
carefully “the particular circumstances of each case assessed against the
purpose[s] of the exemption”: Bastien at paragraph 19.
– IV
–
[37]
The
type of property must be properly identified and factored into the analysis of
relevance and weight. In Bastien, supra and Dubé,
supra, the property under examination was interest income earned from
term deposits. Both confirm that that income is “property” for the
purposes of section 87.
[38]
To
assess the relevance and weight of the connecting factors between this income
and the reserve, the Supreme Court in Bastien considered the nature of
the term deposits in much detail, examining their legal characteristics and
where the money represented by them flows from time to time: Bastien, at
paragraphs 32-34.
[39]
In
Williams, supra, the property under examination was the receipt
of unemployment insurance benefits. Examining this type of property, several
factors were relevant: the residence of the debtor (the government), 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: Williams at page 893. In assessing the
weight to be given to these factors, the nature of the property, unemployment
benefits, was significant: Williams at 893-898, discussed in Bastien
at paragraph 39. While in Williams the Supreme Court rejected the
relevance of conflict of laws principles in determining the location of a debt,
common law principles such as that, as well as provisions and jurisprudence
relating to the location of income, may nevertheless be an important connecting
factor – but, as always the weight to be ascribed to it depends on the type of
property, the nature of the taxation and the purposes underlying section 87:
see Bastien, at paragraphs 41-42.
[40]
In
the case at bar, the property said to be exempt under section 87 is Mr. Kelly’s
business income arising from services. Business income arising from services has
a source, a destination, a reason for why it arises and continues, and a manner
in which it is earned. Therefore, to assess the location of Mr. Kelly’s
business income one might have to examine, among other things, the quantity,
quality and nature of the services, who is providing the services and where,
who is receiving the services and where, the reasons why the services are being
rendered and received, the manner in which the services are being rendered and
received, and the overall management of the business and where that is done. Another
factor we shall see is the “commercial mainstream”: sometimes the services that
generate the business income are readily available from rival off-reserve
sources in the commercial mainstream, but sometimes they are not.
– V –
[41]
The
nature of the taxation must be properly identified and factored into the
analysis of relevance and weight. In Bastien, supra, the
Supreme Court noted that but for section 87, the interest earned from the term
deposits would be included in his income for income tax purposes. For income
tax purposes, Mr. Bastien exchanged property (the principal sum) for the right
to recover the debt (the term deposit) at a later fixed time in order to obtain
a sum of money (interest). In the case at bar, we are concerned with the
taxation of business income for the purposes of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.).
– VI
–
[42]
The
purposes of the section 87 exemption must be properly identified and factored
into the analysis of relevance and weight. In Bastien,
supra, the Supreme Court reviewed, restated and, to some extent,
reformulated the purposes underlying section 87:
● Section
87 “guard[s] against the possibility that one branch of government, through the
imposition of taxes, could erode the full measure of the benefits given by that
branch of government entrusted with the supervision of Indian affairs.” The
Crown must “shield Indians from any efforts by non-natives to dispossess
Indians of the property which they hold qua Indians.” Does “the Indian
[hold] the property in question as part of the entitlement of an Indian qua
Indian on the reserve”? The aim is to “insulate the property interests of
Indians in their reserve lands from the intrusions and interference of the
larger society so as to ensure that Indians are not dispossessed of their
entitlements.” See Bastien, at paragraphs 21-23, citing Mitchell v.
Peguis Indian Band, [1990] 2 S.C.R. 85 at pages 130-131 and 133 and Williams,
supra at pages 885 and 887.
● “The
exemption was rooted in the promises made to Indians that they would not be
interfered with in their mode of life”: Bastien, at paragraph 28. I note
that this appears to be somewhat broader than the statements of purpose underlying
section 87 set out in Mitchell and Williams, summarized
immediately above. Williams did not cast the purpose behind section 87
that broadly. Mitchell concerned paragraph 90(1)(b) of the Act, a
paragraph that deems personal property given to Indians under a treaty or
agreement to be situated on a reserve.
● Section
87 is not about “remedy[ing] the economically disadvantaged position of
Indians” by allowing them to “acquire, hold, and deal with property in the
commercial mainstream on different terms than their fellow citizens”: Bastien,
at paragraph 23, citing Mitchell, at pages 131. Nor is section 87 about
“confer[ring] a general economic benefit upon the Indians”: Bastien, at
paragraph 23, citing Williams, at page 885.
● The
purposes of section 87 must not be taken to amend the words of section 87. Section
87 remains focused on determining whether “the personal property of an Indian
or a band [is] situated on a reserve.” It is not necessary to find that the
property under examination must benefit “the traditional Native way of life,”
and suggestions to the contrary in cases such as Canada v. Folster,
[1997] 3 F.C. 269 (C.A.), Recalma, supra and Lewin v. The
Queen, 2001 D.T.C. 479 (T.C.C.) are to be disregarded. The focus is on
whether there is a “connection between the property and the reserve such that
it may be said the property is situated there for the purposes of the Indian
Act” and not on whether “the property is integral to the life of the
reserve or to the preservation of the traditional Indian way of life.” See Bastien,
at paragraphs 26-27.
● While
the property under examination need not benefit “the traditional Native way of
life,” the relationship between the property and life on the reserve may in
some cases be a factor tending to strengthen or weaken the connection between
the property and the reserve”: Bastien, at paragraph 28. In finding that
a sufficiently
close connection existed between the reserve and the source of the taxpayers’ income in Robertson,
this Court (at paragraph 61) attached significant weight to the long
history of commercial fishing in lakes near the reserve by the First Nation and
their ancestors, and the continuing importance of that fishing to the economic,
social, and cultural fabrics of the reserve.
[43]
Post-Bastien,
this Court has observed that the lack of clarity in the Supreme Court’s
enumeration of the purposes underlying section 87 poses a challenge in
particular cases:
Absent
a clearer sense of legislative objective, the juggling of multiple connecting
factors is apt to result in arbitrary results. Nonetheless, our job is to apply
the settled law to the facts before us as best we can.
(Robertson, supra at
paragraph 51.)
[44]
I
agree. However, one matter that is quite clear from Bastien is that
ascribing too much weight to individual connecting factors can undermine the purposes
underlying section 87. Instead, the relevance and weight of the connecting
factors must be determined in light of those aspects of the purposes underlying
section 87 that are brought alive by the facts of the particular case.
[45]
In
light of Bastien, the approach of listing factors in the abstract, as if
they are relevant and deserving of weight in all cases, and then simply
applying them to the facts of a particular case can no longer stand in light of
Bastien: for such an approach, see Southwind v. Canada (1998), 156 D.L.R. (4th) 87 (F.C.A.) at paragraphs 12 and
13.
[46]
In
Bastien, the Supreme Court explicitly criticized the approaches this
Court has followed in some of its cases. For example, it criticized Recalma,
supra, for attaching too much weight to whether the economic activity of
a taxpayer generating the income was in the “commercial mainstream.” It warned
that the “commercial mainstream” consideration “must be applied with care” in
light of the purposes of section 87, lest it significantly undermine the
exemption”: Bastien, at paragraph 52. It added that First Nations do
engage in trade and commerce and so the fact that income is generated by trade
and commerce does not necessarily oust the section 87 exemption: Bastien,
at paragraph 56. In
its view, property can be both in the commercial mainstream and connected or
even integral to a reserve at the same time: Robertson, at paragraph 62.
[47]
In
Bastien, too much focus on the “commercial” nature of the term deposits
led the lower courts into error. They started to concentrate on the
income-earning activities of the Caisse that issued the term deposit, rather
than on the income-earning activities of Mr. Bastien: Bastien, at
paragraph 60. The proper approach in Bastien was to focus on the
investment activity of Mr. Bastien and not the debtor financial institution and
its activities as a participant in wider commercial markets.
– VII –
[48]
Beware
of artificial or abusive connections. In Bastien,
the Supreme Court recognized that taxpayers can create artificial or abusive connections
between their income and a reserve in order to try to claim a section 87
exemption. The Court noted that the legal form of an instrument creating income
is relevant, but the substance must also be examined. In some cases, the substance
predominates and less weight must be given to legal form: Bastien, at
paragraph 62.
(3) Applying
these principles to the Tax Court’s decision
[49]
In
my view, the core of the Tax Court’s decision, set out at paragraph 57 of the
reasons, is inconsistent with Bastien, supra, in a number of
respects. In paragraph 57, the Tax Court begins by noting:
I cannot
satisfy myself that Mr. Kelly's income from his business is protected from
section 87 of the [Indian Act], that he held his income from business as
part of the entitlement of an Indian qua Indian on a reserve.
[50]
The test is not whether Mr. Kelly held his income from
business as part of the entitlement of “an Indian qua Indian on a
reserve.” As explained above, the income need not be related to the aboriginal
way of life. The overarching test is that set out in the statutory language,
namely whether the property, here business income, is situated on a reserve.
[51]
In paragraph 57 of its reasons, the Tax Court adds:
There is no
nexus between the business income received by Mr. Kelly and the occupancy of
reserve lands by him personally.
[52]
The wording of section 87 commands us to ask
not whether the owner of the property (here, Mr. Kelly) is situated on a
reserve, but whether the property (here, income) is situated on a
reserve. In part for this reason, the physical location of the taxpayer was not
deserving of great weight in Dubé, supra. And in holding that
the physical location of the taxpayer “is not necessarily a factor of great
weight,” this Court’s decision in Robertson, supra is to the same
effect (at paragraph 57). There is no need for a “nexus between the business income received by Mr. Kelly and the occupancy of
reserve lands by him personally.” Instead, the focus of the analysis is whether
the income earned by the taxpayer can be said to be situated on a reserve in
light of the type of property, the nature of the taxation of the property and
the purposes behind section 87.
[53]
In
this regard, part of the Tax Court’s analysis leading up to paragraph 57 of its
reasons involved a calculation of the time Mr. Kelly spent in locations on or
off a reserve. While that may be relevant to the analysis, Bastien warns
us that attaching too much weight to this in isolation without viewing it in
its overall context can be overly simplistic.
[54]
For
example, although Mr. Kelly spent less than half his time physically present on
reserves, some important and meaningful parts of his services – teaching,
healing, the performance of traditional ceremonies, and imparting spiritual,
cultural and historical knowledge about the Anishinaabe mode of life – were
performed while he was physically present on reserves. As well, it may be
relevant that some of his time outside of reserves was to prepare for these
activities on reserves.
[55]
Business
income, as described in paragraph 42, above, is more complex and nuanced than
just the physical location from time to time of the person providing the
services and the books and records of the business.
[56]
In
light of the foregoing, placing significant weight on the percentages of time
Mr. Kelly is physically present on or off reserves or where he maintains his
books and records fastens on only one aspect of the nature of the income in
this case. More significant is what he was doing at various times and the
connection of those activities to the reserves, all viewed in light of the
purposes underlying section 87.
[57]
How
these considerations weigh into the overall analysis will be for the Tax Court
to determine when it redetermines the matter.
[58]
Finally,
at the end of paragraph 57, the Tax Court adds:
While I have given some weight to the fact that his debtors
were reserves or persons residing on reserves and significant weight to the
services he provided to these persons, I cannot identify the location of
Mr. Kelly's income as being on a reserve. Once the property, i.e.,
the amount of money invoiced and paid to Mr. Kelly, left a reserve it entered
the economy off the reserve. The money, when received by Mr. Kelly, ceased to
have anything to do with a reserve. The factors in favour of the income not
being on a reserve have more weight than any factors that may arguably be
connected to a reserve.
[59]
It
is fair to say from this passage that “commercial mainstream,” construed in the
way the Tax Court did, loomed large in its analysis and overall conclusion.
[60]
In
my view, the Supreme Court has changed the meaning and significance of the
commercial mainstream factor such that the Tax Court’s analysis in paragraph 57
can no longer be said to be correct.
[61]
If
the place where the money enters the economy were determinative, section 87
would seldom, if ever, be available to Indians who earn income from trade and
commerce. As noted above, the Supreme Court in Bastien has emphasized
that the commercial mainstream factor should be only an “aid” in determining
the location of property for the purposes of section 87, not a determinative
test (at paragraph 56). It identified several cases where this Court and others
have over-emphasized the importance of this factor, placing undue emphasis on
off-reserve activities (at paragraphs 52 and 55-59). An activity that is
off-reserve and bears resemblance to a commercial activity does not
automatically oust the application of section 87. That would imply,
incorrectly, that “trade and commerce is somehow foreign to the First Nations”:
Bastien at paragraph 56.
[62]
In
paragraph 57 of its reasons, the Tax Court seems to have elevated the
commercial mainstream factor, as it defines it, to the level of a
“determinative test,” setting up “a false opposition between ‘commercial
mainstream’ activities and activities on a reserve,” contrary to the recent
words of the Supreme Court in Bastien, at paragraph 56.
[63]
To
similar effect, this Court stated the following in Robertson (at
paragraph 62):
That the Appellants’ fishing business may have
connections with markets off-reserve does not weaken the connection of the
resulting income to the Reserve. In Bastien (at paras. 52-56), the Court
firmly rejected the “false opposition” between income earned in the “commercial
mainstream” and that earned from an activity that was “integral to the life of
a reserve,” a distinction on which some previous cases has relied. Since the
commercial nature of an income-generating activity does not preclude its being
situated on a reserve, the Court indicated that property can be both in the
commercial mainstream and connected (or even integral) to a reserve at the same
time.
[64]
The
commercial mainstream factor, among other things, is meant to ensure that
section 87 is not used to remedy the economically disadvantaged position of
Indians “[b]y ensuring that Indians may acquire, hold and deal with property in
the commercial mainstream on different terms than their fellow citizens”: Mitchell
v. Peguis Indian Band, [1990] 2 S.C.R. 85 at page 131, cited in Bastien,
supra at paragraphs 21 and 54. Care must be taken not to ascribe weight
to the commercial mainstream factor in a manner that undercuts the purposes of
section 87.
[65]
Finally,
it is not apparent that in paragraph 57 of its reasons the Tax Court factored
the underlying purposes of section 87 into its overall assessment. As Bastien
makes clear, the relevance and weight of the connecting factors is driven in a
significant way by the purposes underlying section 87. It is fair to say that
the Tax Court analyzed the connecting factors to some extent in the abstract,
rather than assessing their relevance and weight in light of the purposes
underlying section 87 that are brought alive by the facts of this case.
(4) What
follows now?
[66]
The
judgment of the Tax Court cannot stand. Under paragraph 52(c) of the Federal
Courts Act, R.S.C. 1985 c. F-7, this Court may give the decision that
should have been given by the Tax Court or refer the matter back to the Tax
Court for redetermination. I opt for the latter.
[67]
In
Robertson, supra, this Court found that although Bastien
and Dubé “in some respects modified the previous law” and “reset
the previous analytical framework in some significant respects,” this did not
matter because the Tax Court reached the correct result. The evidentiary record
showed that the property under examination was exempt under section 87 and Bastien
and Dubé did not affect that result.
[68]
This
case is different. Based on the record before us, especially a review of the
transcript of the proceedings before the Tax Court, I am not confident that the
parties appreciated the concept of “commercial mainstream,” as defined in Bastien,
and adduced evidence relevant to it. Nor am I confident upon a reading of that
transcript that the parties appreciated the need, highlighted in Bastien,
to examine thoroughly the nature of the type of property, here business income,
a matter involving a number of nuances discussed at paragraph 42, above. Nor am
I confident that the record contains sufficient information concerning what Mr.
Kelly was doing at various times and the connection of those activities to the
reserves, a matter also emphasized in Bastien; the parties seemed to
fasten more on the physical location of Mr. Kelly when he was performing his
activities.
[69]
Also,
as the above summary of Bastien, shows, the assessment of the relevance
and weight of the connecting factors, in light of the purposes underlying
section 87 that are brought alive by the facts of this case, is a subtle one
and, in this case, particularly so. In this case, I am reluctant to assess the
relevance and weight of the connecting factors when some of the key evidence
concerning some of them was offered by Mr. Kelly in oral testimony. The Tax
Court that heard Mr. Kelly’s oral testimony is best equipped to assess this,
not us.
[70]
I
am also mindful of the practical litigation context. Parties construct their
cases carefully to elicit evidence that prompts factual findings that trigger
the applicable legal tests. Here, the parties no doubt constructed their cases
around the jurisprudence of this Court and the Tax Court over the last nineteen
years, jurisprudence that has now been altered.
[71]
Finally,
we are dealing with the application of section 87, a section of great importance
to aboriginal peoples. Applying the section, especially in the sort of case
before us, requires a nuanced approach, with careful regard to the perspective
of aboriginal peoples, a perspective that is most important: see Robertson
at paragraph 84, citing R. v. Van der Peet, [1996]
2 S.C.R. 507 at paragraphs 49-50; Delgamuukw v. British Columbia, [1997]
3 S.C.R. 1010 at paragraphs 81-82; R. v. Marshall, [1999] 3 S.C.R.
456 at paragraph 19. The sort of nuances involved in a case such as
this are best appreciated by the judge who heard and saw the witnesses, not by
an appeal court reading words on a transcript. In this particular case, I am
not satisfied that this Court is in as good a position as the Tax Court to assess and weigh the
evidence: Hollis v. Dow Corning Corp., [1995] 4 S.C.R. 634 at
paragraph 33.
[72]
Therefore,
I conclude that out of fairness the parties should be given an opportunity to
adduce further evidence, if necessary, and have this matter redetermined on the
basis of the existing record and any new evidence offered by the parties as a
result of the release of Bastien and Dubé and considered relevant
by the Tax Court.
D. Proposed
disposition
[73]
For
the foregoing reasons, I would allow Mr. Kelly’s appeal, set aside the judgment
of the Tax Court, and remit the matter to the original Tax Court judge for
redetermination in accordance with the principles set out in these reasons.
[74]
Costs
generally follow the event. Mr. Kelly has been successful in this appeal and,
therefore, I would grant him his costs of this appeal. As the matter is to be
remitted to the Tax Court, I would leave the costs of the earlier and future
Tax Court proceedings to the discretion of the Tax Court judge hearing the
redetermination.
"David Stratas"
“I
agree
Eleanor R. Dawson J.A.”
“I
agree
Johanne Trudel J.A.”
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