The Queen v. Erasmus, 92 DTC 6301, [1992] 2 CTC 21 (FCA)

Pratte, J.A.:—This is an appeal from the Trial Division dismissing a motion made by the appellant, defendant in the Court below, to strike out the respondents' (hereinafter referred to as the plaintiffs) statement of claim under Rule 419 of the Rules of the Federal Court.

The statement of claim was filed on January 22, 1991. It mentions, as plaintiffs, the names of six individuals (acting tor themselves and for the employees of the Dene Nation, a corporation incorporated under the laws of the Northwest Territories representing the 28 bands of the Dene Nation) and the Dene Nation itself. It alleges that the individually named respondents are Indians within the meaning of section 2 of the Indian Act and members of Indian bands that were parties to either Treaty No. 8 or Treaty No. 11; that, since 1982, they have been employed in various capacities for specified periods by the Dene Nation; that their salaries were paid from moneys received by the Dene Nation pursuant to an agreement or agreements between the Dene Nation and Her Majesty; that the plaintiffs William Erasmus and Gerry Cheezie were also employed and paid by Dene-Metis Secretariat, an organization funded by the Dene Nation from moneys received pursuant to an agreement with Her Majesty; that, in addition, from 1980 to 1986, William Erasmus attended the University of Alberta as a student and received from the Territorial Government scholarships or grants which were paid out of moneys given for that purpose to the Territorial Government by the Federal Government; that most individual respondents resided on lands set aside for their band under the Territorial Lands Act, and worked on those lands for the benefit of band members; that, for most of the years in question, most of the individually named plaintiffs have paid income tax on the salaries or grants that they have thus received; that their income, however, was exempt from tax by virtue of sections 87 and 90 of the Indian Act, pursuant to Treaty and, also, since lands set aside under the Territorial Lands Act are reserves within the meaning of the Indian Act, by reason of the fact that their work was done on such lands for the benefit of band members residing there.

On the basis of those allegations, the plaintiffs seek the following relief:

THE PLAINTIFFS CLAIM AS FOLLOWS:

(a) A Declaration that income earned by employees of the Dene Nation who are Indians, who are paid pursuant to an agreement between the Dene Nation and Her Majesty are not subject to taxation.

(b) A Declaration that all moneys taxed from employees of the Dene Nation who are Indian, whose income was paid from moneys paid pursuant to an agreement between the Dene Nation and Her Majesty, be repaid, plus interest to all employees of the Dene Nation.

(c) A Declaration that lands set aside under the Territorial Lands Act are reserves within the meaning of the Indian Act, and that ss. 87 and 90 are applicable to these lands and all income earned on lands set aside are not subject to taxation.

(d) A Declaration that an order issue that all moneys taxed from employees of the Dene Nation, earned on lands set aside, pursuant to s. 87 of the Indian Act, be repaid, plus interest to all the employees of the Dene Nation who fit the criteria.

(e) A Declaration that moneys received by the Territorial Government for the education of Indian students pursuant to an agreement from the Federal Government and the Territorial Government, is not taxable.

(f) Costs of this action.

(g) Such further and other relief as Counsel may advise and this Honourable Court may allow.

The appellant applied, as I already said, to strike out that statement of claim and filed, in support of the motion, an affidavit of an employee of the Department of National Revenue establishing that, for most of the years in question, the income tax liability of the plaintiffs had been determined by assessments pursuant to section 152 of the Income Tax Act. It was the appellants position that the Court lacked the jurisdiction to entertain the action by virtue of section 29 of the Federal Court Act and that the statement of claim or portions thereof disclosed no reasonable cause of action or were frivolous, vexatious and an abuse of the process of the Court.

Mr. Justice Pinard dismissed the motion. He was not convinced that the Court lacked jurisdiction or that the statement of claim did not disclose a reasonable cause of action.

Counsel for the appellant raised three grounds of appeal. His main contention was that Mr. Justice Pinard, had he taken into account the affidavit filed in support of the motion to strike, ought to have found that the Court was deprived of the jurisdiction to entertain this action by the very terms of section 29 of the Federal Court Act as well as by the general scheme of the Income Tax Act. His other points were that, in any event, certain allegations of the statement of claim ought to be struck out as disclosing no reasonable cause of action and that the Dene Nation and the unnamed employees of the Dene Nation should be struck out as plaintiffs.

Dealing first with this last argument, it must be conceded that the statement of claim does not contain any allegations concerning the unnamed employees of the Dene Nation and explaining the interest of the Dene Nation in the matter since all its factual allegations relate to income that the individual plaintiffs have earned in the past. However, when one considers the generality of the declarations sought by the plaintiffs and the fact, which is obvious even if it is not alleged, that the Dene Nation will continue in the future to have employees who will receive income of the same kind as the income that the individually named plaintiffs have received in the past, one cannot avoid the conclusion that, in spite of the shortcomings of the statement of claim, the Dene Nation and its unnamed employees have an interest in these proceedings and should not be struck out as plaintiffs.

I now turn to the other two grounds of appeal raised by the appellant. I. The jurisdiction of the Court

The appellants counsel prefaced his argument on this point by the remark that, as the prohibition contained in Rule 419(2) [1] applies only to an application to strike out a pleading made on the ground that it does not disclose a reasonable cause of action, the affidavit filed in support of the motion must be taken into consideration in order to determine whether the statement of claim should be struck out as pleading a cause of action which is outside of the jurisdiction of the Court. This is so obviously right that I doubt that Mr. Justice Pinard intended to say the contrary.

The affidavit filed by the appellant in support of the motion shows that for most of the taxation years referred to in the statement of claim, the income tax liability of the individually named plaintiffs was confirmed by assessments that were never successfully attacked pursuant to the Income Tax Act. It follows, says counsel, that, at least for those years, the Court is deprived by section 29 of the Federal Court Act? [2] of the jurisdiction to grant the relief sought by the plaintiffs since an income tax assessment is a decision that, until January 1, 1991, might be appealed to the Federal Court and that, since that date, may be appealed to the Tax Court.

This reasoning would be compelling if the plaintiffs were seeking by their action to set aside or vary income tax assessments. But that is not what they claim. They merely pray for a declaration that certain kinds of income be declared to be exempt from tax and that the tax they paid on that income be refunded. As they are not attacking any assessments, section 29 has no application here.

This does not mean that the plaintiffs' action could succeed for the taxation years where their income tax liability has been determined by an assessment. Obviously, it could not. The reason for this, however, is not that the Court has no jurisdiction to grant the relief sought for those years, but rather, that, in those years, the plaintiffs are not entitled to that relief since under subsection 152(8) of the Income Tax Act, an income tax assessment is deemed to be valid and binding as long as it has not been vacated or varied under the provisions of that Act.

It follows that, contrary to what was argued by the appellant, the affidavit filed in support of the motion does not snow that section 29 ousts the Trial Division of its jurisdiction with respect to the years where the plaintiffs’ tax liability was confirmed by an assessment; it merely shows that, for those years, the plaintiffs have no reasonable cause of action, a purpose for which the affidavit cannot be used.

The appellant also argued that, in any event, the jurisdiction of the Court to entertain the plaintiffs’ action is impliedly taken away by the Income Tax Act which provides for a scheme for tracking income tax assessments and for recovering taxes unduly paid. I do not agree. I do not see anything in that Act which limits the jurisdiction of the Trial Division, in an appropriate case, to issue a declaration as to the taxability of certain revenues or to order the repayment of taxes that the Minister unduly retains.

It is important to note, however, that the provisions of the Income Tax Act are, for another reason, essential to the solution of our problem. Under that Act, the Minister is entitled to retain all the moneys that have been paid by a taxpayer pursuant to the Act until the income tax liability of the taxpayer is determined by assessment [3] . Until an assessment is made, therefore, a court may not order the refund of the sums paid as income tax because, until that time, the Minister is entitled to retain them whether or not they have been unduly paid. It is only after the assessment that the Minister has the obligation to refund the taxes that have been paid in excess of the amount determined by the assessment. It follows that the Trial Division may not order the Minister to reimburse taxes unduly paid unless it be shown that the Minister, after determining by an assessment that the sums paid by the taxpayer exceeded his tax liability, illegally refuses to refund the overpayment. The plaintiffs’ statement of claim does not allege anything which would even remotely suggest that such a situation exists here. For that reason, that part of the statement of claim, namely paragraphs (b) and (d) of the prayer for relief, seeking a declaration that the appellant ought to reimburse the taxes paid by the plaintiffs should be struck out. Assuming the truth of all the allegations of the statement of claim, the plaintiffs would not be entitled to that relief.

II. No reasonable cause of action

The appellant's counsel finally argued that certain allegations of the statement of claim ought to be struck out on the ground that they disclose no reasonable cause of action. He referred to allegations that the individually named plaintiffs reside on lands set aside under the Territorial Lands Act, that their work and duties were carried out on such lands for the benefit of Indians residing there. It is well established, said he, that lands set aside under the Territorial Lands Act are not reserves [4] and, in any event, the fact that the plaintiffs may have resided on a reserve and worked there is irrelevant to the question of determining whether their income is exempt from taxation.

I agree. The statement of claim shows clearly that the plaintiffs’ position is that the setting aside of lands for the benefit of Indians under the Territorial Lands Act is, by itself, the equivalent of the creation of a reserve as defined in the Indian Act. This position appears to me to be untenable. And, in any event, the fact that the individual plaintiffs may have resided and worked on a reserve, for the benefit of Indians living there, appears to me to be irrelevant to the question of the taxability of the income that they derived from that work. [5] I would, therefore, strike out the last sentence of paragraph 3, the second sentence of paragraphs 4, 8, 9 and 12, the first sentence of paragraph 13, paragraph 17, the second sentence of paragraph 18, the last sentence of paragraph 19 and of paragraph 21, the whole of paragraph 24 and paragraph (c) of the prayer for relief.

I would, therefore, allow the appeal with costs in both courts, set aside the order of the Trial Division and strike out the above mentioned portions of the statement of claim. I would also order the plaintiffs to file within 15 days a new amended statement of claim from which the above mentioned parts of the statement of claim shall be deleted.

Appeal allowed.