Clarke v. MNR, 92 DTC 2267, [1992] 2 CTC 2743 (TCC)

Hamlyn, T.C.C.J.:—These appeals, while separately constituted, were heard together at a sitting of this Court at Winnipeg, Manitoba.

The appeals are from several appellants who are Indians within the meaning of subsection 2(1) of the Indian Act, R.S.C. 1985, c. 1-9, and resided on the reserve of the Norway House Indian Band.

Each of the appellants sought to delete certain employment earnings from the computation of income for the hereinafter stated taxation years on the basis that such earnings were exempt from taxation. The Minister of National Revenue (the"Minister") included those earnings in various reassessments for the several appellants as taxable income. The appellants objected to the reassessments by notices of objection and the Minister confirmed the reassessments by respective notices of confirmation.

The appellant's position in each case is that the employment earnings are situated "on the reserve” and as such the earnings being the personal property of each appellant are exempt from taxation by virtue of section 87 of the Indian Act of Canada.

The respondent's stated position in each case is that the employment earnings are not situated "on the reserve” and therefore under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") of Canada are subject to taxation.

Legislation and jurisprudence

Personal Property Situated on a Reserve

The Indian Act, subsections 87(1) and (2) read in part as follows:

(1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely

(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.

Section 2 defines:

reserve"

(a) means a tract of land, the legal title to which is vested in Her Majesty, that

has been set apart by Her Majesty for the use and benefit of a band.

The guiding principle for the interpretation of tax legislation relating to Indian persons as defined by the Indian Act was set out by the Supreme Court of Canada in Nowegijick v. The Queen, [1983] 1 S.C.R. 29, [1983] C.T.C. 20, 83 D.T.C. 5041, at page 36 (C.T.C. 23, D.T.C. 5044), where Dickson, J. said:

It is legal lore that, to be valid, exemptions to tax laws should be clearly expressed. It seems to me, however, that treaties and statutes relating to Indians should be liberally construed and doubtful expressions resolved in favour of the Indians. If the statute contains language which can reasonably be construed to confer tax exemption that construction, in my view, is to be favoured over a more technical construction which might be available to deny exemption. In Jones v. Meehan, 175 U.S. 1 (1899) it was held that Indian treaties “must. . . be construed, not according to the technical meaning of [their] words . . . but in the sense in which they would naturally be understood by the Indians".

This interpretation principle has been further extended by the Federal Court of Appeal in Saugeen Indian Band v. M.N.R., [1990] 1 F.C. 403, 104 N.R. 201 (leave to appeal refused (1990), 115 N.R. 320) where MacGuigan, J.A. said at page 417 (N.R. 209):

The respondent argued that this general principle of liberal construction for Indian treaties and statutes should have application only when the statute is doubtful or ambiguous, but my own view is that it should be applied whenever the statutory language is reasonably open to a liberal construction.

Certain other principles surrounding the determination of the situs of personal property have been developed by several courts.

It is the property and not the status person which must be located on the reserve (see Greyeyes v. The Queen, [1978] C.T.C. 91, 78 D.T.C. 6043 (F.C.T.D.)). Service is not personal property (see Paul v. M.N.R., [1990] 1 C.T.C. 2413, 90 D.T.C. 1298 (T.C.C.)). The receipt of employment earnings for service is personal property and the inclusion of employment earnings in income gives rise to a tax in respect of that property within the meaning of section 87 of the Indian Act (see Nowegijick, supra). The proposition that there can be a notional reserve outside the legal boundaries of the reserve has been rejected by this Court (see Kirkness v. M.N.R., [1991] 2 C.T.C. 2028, 91 D.T.C. 905 (T.C.C.)).

The test for legal situs of a simple contract debt under conflict of laws is the situs of the debtor (see The Queen v. National Indian Brotherhood, [1978] C.T.C. 680, 78 D.T.C. 6488, affirmed in Nowegijick, supra. The rationale is that the debt may normally be enforced at the residence of the debtor (see New York Life Ins. Co. v. Public Trustee, [1924] 2 Ch. 101 (C.A.), at 119). Where the federal Crown is the employer, it has been held that the situs for the contract must be Ottawa (see Horn v. M.N.R., [1989] 1 C.T.C. 2208, 89 D.T.C. 147 (T.C.C.)).

In Williams v. The Queen, [1992] 1 C.T.C. 225, 92 D.T.C. 6320, the Supreme Court of Canada determined the situs of unemployment insurance benefits paid to a status Indian residing off the reserve when the benefits received related to employment on the reserve. While the choice of employment is that of the individual, the taxation exemption of the personal property must be determined by the Indian Act.

In this context, the Court stated at page 231 (D.T.C. 6325):

In resolving this question, it is readily apparent that to simply adopt general conflicts principles . .. would be entirely out of keeping with the scheme and purposes of the Indian Act and the Income Tax Act. It is simply not apparent how the place where a debt may normally be enforced has any relevance to the question whether to tax the receipt of the payment of that debt would amount to the erosion of the entitlements of an Indian qua Indian on a reserve. The test for situs under the Indian Act must be constructed according to its purposes, not the purposes of the conflict of laws.

The Court set out the following test at page 232 (D.T.C. 6326):

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.

Deemed reserves

Under certain circumstances, personal property is deemed to be on a reserve by subsection 90(1) of the Indian Act:

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

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

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

shall be deemed always to be situated on a reserve.

“Her Majesty" as used in paragraphs 90(1)(a) and (b) of the Indian Act means the federal Crown (see Mitchell v. Pegu is Indian Band, [1990] 2 S.C.R 85, 71 D.L.R. (4th) 193, at page 142 (S.C.R.)).

Section 90 must be read in conjunction with sections 87 and 89. The purpose of section 87 is to preserve the entitlement to reserve land and to ensure that use of property on reserve land is not eroded by the ability of governments to tax or creditors to seize. At page 137 of Mitchell, supra:

. . .a review of the obligations that the Crown has assumed in this area shows that it has done no more than seek to shield the property of Indians that has an immediate and discernible nexus to the occupancy of reserve lands from interference at the hands of non-natives.

In the context of a nursing station, the Court held that paragraph 90(1)(a) requires that the money not be appropriated for the citizens of Canada generally (see Kirkness, supra, at 2034 (D.T.C. 909)).

Hereinafter is the examination and determination of the separate individual appeals before the court.

William Clarke

This appeal is in respect of the 1981, 1982 and 1983 taxation years.

The appellant was employed by the Province of Manitoba as a labourer/ equipment operator at the Norway House Airport (the" airport"), part of which is located on reserve land which was surrendered by the Norway House Indian Band, which did not have any reversionary rights back to the Indian band. Most of this land upon which the airport is located is provincial Crown land located adjacent to but not within the geographical boundaries of the Norway House Indian Reserve.

The administration and control of the above-noted lands was transferred by the federal Crown to the provincial Crown in 1976.

The appellant received his pay cheque from his employment at the airport with cheques drawn on the Royal Bank in Winnipeg.

The appellants wages came from the Province of Manitoba. The federal government entered into a contribution agreement with the provincial government to provide funds for the operation of airports in the province.

The provincial government is responsible for any spending over the amount negotiated by the above-noted agreement.

From the evidence presented at the hearing it was determined that the airstrip was constructed on lands that were formerly reserve lands and a land exchange has facilitated the construction. The airport services the whole area including both reserve and non-reserve residents.

It was also agreed between the parties at the hearing that the appellant spent 50 per cent of his work time performing his employment tasks on reserve lands.

Employment earnings situs analysis

The Norway House Airport is not on a deemed reserve.

The appellant is employed by the provincial government which is situated off the reserve. The provincial government operates the airport which serves the whole community, including the reserve residents, but it is situated off the reserve. The appellant resides on the reserve. Half of the appellant's duties are performed on the reserve. The appellant received his employment earnings at the airport with cheques drawn on the Royal Bank in Winnipeg.

The question with regard to each of these connecting factors in the determination of situs of the personal property is what weight the connecting factor should be given in answering the question whether to tax that form of property in that manner would amount to the erosion of the entitlement of the appellant as an Indian qua Indian on a reserve. The property in question is employment earnings and the tax in question is income tax. The appellant has a choice. He may choose to work off the reserve in which case he has entered the general commercial mainstream and must be treated as any other Canadian citizen. Alternatively, he may choose to limit himself to the protective confines of the reserve and thereby protect his personal property from taxation and seizure. The appellant has chosen to accept employment which requires that a substantial amount of his duties are performed upon the reserve. Therefore, he has chosen to remain within the protective confines of the reserve. This choice is the dominant factor in determining the situs of the employment earnings. The appellant also lives on the reserve which buttresses the connection to the reserve through his employment. Therefore, although other connecting factors point off the reserve, the situs of the appellant's employment earnings is on the reserve. To hold otherwise would amount to the erosion of the entitlement of the appellant who is an Indian qua Indian on the reserve.

Decision

The appeal of William Clarke for the taxation years in question is allowed and referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant's employment earnings for his employment at the Norway House Airport are situated on a reserve and as such, being the personal property of the appellant the employment earnings are exempt from taxation pursuant to paragraph 87(1)(b) of the Indian Act.

Elizabeth Ann Poker

This appeal is with respect to the 1981 and 1982 taxation years.

The appellant was employed as a teacher by the Frontier School Division at Jack River School which is located adjacent to but not within the geographical boundaries of the Norway House Indian Reserve. The ownership of the land is disputed by the Norway House Indian Band.

The duties of the appellant's employment were primarily performed at her employer's place of business.

The appellant received her pay cheque from her employment from the Frontier School Division.

The Frontier School Division operates 37 schools in 34 communities.

The Frontier School Division received its operating revenue from the follow- ing sources in the 1991 school year:

It is believed by the parties that the percentage of operating revenue for the Frontier School Division was approximately the same in 1981 and 1982.

In 1981 there were 468 students at the Jack River School, of which 314 were Status Indians; in 1982 there were 421 students at the Jack River School, of which 302 were status Indians.

The Norway House Indian Band has opted for AFA status (Alternative Funding Arrangement Status) with Indian and Northern Affairs in 1987. This AFA status allows the band to receive a lump sum of money from Indian and Northern Affairs Canada to enable the band to fund essential services to the band, including education.

A tuition agreement between the government of Canada, the Manitoba Indian Brotherhood and the government of the province of Manitoba was in effect until June 1982.

Under the above-noted agreement, the federal government paid on a per capita basis for the Indian students attending the Jack River School, the Rossville School and the Norway House High School.

All funds received by the Frontier School Division as referred to above are put into the general operating fund of the School Division and are disbursed as required to the various schools in each region.

The payroll for wages to employees of the Jack River School is produced in Winnipeg and drawn on the Royal Bank in Winnipeg and is paid at the Jack River School or on request, forwarded to the individual employee's bank account directly.

The evidence indicated the administrative office for the three schools is located on the reserve and the three schools are operated administratively from this office. It would also appear the school at Jack River was built on lands owned by the Roman Catholic Church (Provincial Keewatin District), however, as indicated the band believed the lands were reserve lands.

The status Indians employed at the schools on the reserve are entitled to the personal property tax exemption status under the Indian Act whereas the status Indians employed at the Jack River School have been denied the exemption. The evidence indicates the schools are seen as one school system by the Norway House Indian Band. The Jack River School was built and is operated in part, it would appear, in response to Treaty no. 5 between Her Majesty The Queen and the Saulteaux and Swampy Cree Tribes of Indians at Beren's River and Norway House with Adhesions (Exhibit A-2) wherein Her Majesty The Queen "agrees to maintain schools for instruction in such reserves hereby made as to Her Government of the Dominion of Canada may seem advisable, whenever the Indians of the reserve shall desire it".

Employment earnings situs analysis

The Jack River School serves 80 per cent status Indians and 20 per cent nonstatus persons.

The appellant is a status Indian residing on the reserve. She is employed at the Jack River School. This school was built in part by Her Majesty under a treaty obligation on disputed lands adjacent to the reserve. The school is now supported by the Government of Canada on a per capita basis for the 80 per cent of the students who are status Indians. The funds are mixed with other funds received. The school operates administratively from the administrative school office on the reserve. Given the substantive designated funds paid by the Government of Canada to operate the school on a continuing basis and the establishment of the school pursuant to the treaty obligation, I conclude, the employment earnings received by the appellant are deemed to be situated on the reserve pursuant to both paragraphs 90(1)(a) and (b) of the Indian Act.

Decision

The appeal of Elizabeth Ann Poker for the taxation years in question is allowed and referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant's employment earnings from her employment at the Jack River School are deemed to be situated on the reserve and as such being the personal property of the appellant, the employment earnings are exempt from taxation pursuant to paragraph 87(1)(b) of the Indian Act.

Catherine Clarke

This appeal is in respect of the 1981, 1982 and 1983 taxation years.

The appellant was employed as a clerk with the Hudson's Bay Company Ltd. which is within the geographical boundaries of the Norway House Indian Reserve but title to which was in the name of the Hudson’s Bay Company Ltd.

The duties of the appellant's employment were performed at the business premises of her employer.

The appellant received her pay cheque from her employment at the Hudson's Bay Company Ltd. (the “Norway House store”) drawn on the Bank of Commerce in Winnipeg, Manitoba.

The appellant's employer is a non-government private company.

The Norway House store is only accessible by land by traversing the reserve lands, that is, to access or egress the store it is necessary to cross the Norway House Indian Reserve.

Employment earning situs analysis

The Norway House store is not on a deemed reserve.

The relevant connecting factors are as follows. The situs of the creditor is on the reserve. The situs of the debtor is the head office of the Hudson's Bay Company Ltd. that is off reserve. The situs of the employment and the place where the employment earnings were received is the Norway House store, also off the reserve. This store is surrounded by the reserve but is located on land owned by the company. Although it is not possible to reach the Norway House store without crossing the reserve, it cannot be said that the Norway House store is situated on the reserve.

The test for each connecting factor is what weight it should be given in answering the question whether to tax the employment earnings in that manner would amount to the erosion of the entitlement of the appellant as an Indian qua Indian on a reserve. The property in question is employment earnings and the tax in question is income tax. It cannot be said that the entitlement of the appellant as an Indian qua Indian is being eroded through income taxation where the connecting factor linking the situs of that property to the reserve is only the residence of the appellant. The situs of the employment earnings was not on the reserve.

Decision

The appeal of Catherine Clarke for the taxation years in question is dismissed.

Robert B. Wilson

This appeal is in respect of the 1981 taxation year.

For a portion of the 1981 taxation year, the appellant was employed at the Norway House Airport (the "airport") which is located on reserve land which was surrendered by the Norway House Indian Band, which did not have any reversionary rights back to the Indian band. The said airstrip is adjacent to but not within the geographical boundaries of the Norway House Indian Reserve.

The administration and control of the above-noted surrendered lands were transferred by the federal Crown to the provincial Crown in 1976.

For a portion of the 1981 taxation year, the appellant was employed with the Manitoba Hydro (the "hydro"), which had a location on part of the Norway House Settlement which is located adjacent to but not within the geographical boundaries of the Norway House Indian Reserve.

During 1981, the appellant performed the duties of his employment with hydro primarily at his employer's business premises.

The appellant received his pay cheque from his employment from:

Hydro: Manitoba Hydro drawn on the Royal Bank located in Winnipeg, Manitoba and

Airport: The Province of Manitoba, located in Winnipeg, Manitoba.

No evidence was presented as to work tasks, if any, performed on the reserve.

Employment earnings situs analysis

Manitoba Hydro and the Norway House Airport are not located on a deemed reserve. This appellant worked for both hydro and the airport in the Norway House area. Both employers served the whole area and not simply the reserve or its residents. The appellant lived on the reserve. The situs of the employers' head offices are off the reserve (Winnipeg). The place of actual employment was primarily off the reserve. The place of the employment earnings payment is off the reserve.

On balance it is concluded with only the residence of the appellant being on the reserve and the weighing of all the factors in relation to the purpose of the exemption, the character of the property in question and the incidence of taxation on the property, the situs of the employment earnings of Robert B. Wilson is off the reserve.

Decision

The appeal of Robert B. Wilson for the taxation year in question is dismissed.

Victoria Paupanekis

This appeal is in respect of the 1981 and 1982 taxation years.

The appellant was employed by the post office in the Town of Norway House which is located adjacent to but not within the geographical boundaries of the Norway House Indian Reserve.

The duties of the appellant's employment were primarily performed at her employer's business premises.

The appellant received her pay cheque from her employment at the Norway House post office from Canada Post, a Crown Corporation of the federal government drawn on the Caisse Centrale Desjardins, 1 1 Complexe Desjardins, in the City of Montreal, Quebec.

The postmaster and three employees are members of the Norway House Indian Band. The post office serves the whole area including reserve and nonreserve residents.

Employment earnings situs analysis

The Canada Post post office is not on a deemed reserve. This appellant works for Canada Post. Canada Post serves all residents of the area without restriction. The appellant resides on the reserve. The situs of the appellant's employment is off the reserve. The situs of the payment of her employment earnings is off the reserve. Save her residence, all of the connecting factors lead to a conclusion the employment earnings location is off the reserve. The taxation of her earnings income from Canada Post would not erode her entitlement as an Indian qua Indian to her personal property situated on the reserve when the only connecting factor is her residence.

Decision

The appeal of Victoria Paupanekis for the taxation years in question is dismissed.

Freda Albert

This appeal is in respect of the 1981, 1982 and 1983 taxation years.

The appellant was employed by the Norway House Community Council which is located adjacent to but not within the geographical boundaries of the Norway House Indian Reserve.

The duties of the appellants employment were primarily performed at the business premises of her employer.

The appellant received her pay cheque from her employment from the Norway House Community Council at the community council premises and drawn on the Royal Bank in Thompson, Manitoba.

The community council provides services to status Indians, Metis and to non-native persons.

The appellants wages came from funds from the Province of Manitoba through their Department of Northern Affairs.

Employment earnings situs analysis

The Norway House Community Council is not on a deemed reserve. The situs of the employer is off the reserve. The residence of the appellant is on the reserve. The employment earnings are paid off the reserve. The service the appellant provides is off the reserve. By definition it may be that there was a cultural connection between the services of the employer and the residents of the reserve, however, there is no specific evidence to support this position. On balance it is concluded with only the residence of the appellant being on the reserve and the weighing of all the factors in relation to the purpose of the exemption, the character of the property in question and the incidence of taxation on the property, the situs of the employment earnings of Freda Albert is off the reserve.

Decision

The appeal of Freda Albert for the taxation years in question is dismissed.

F. Marianne Folster

This appeal is in respect of the 1984 and 1985 taxation years.

The appellant was employed at the Norway House Indian Hospital (the "hospital") which is in the vicinity of but not within the geographical boundaries of the Norway House Indian Reserve.

The appellant's employer was Health and Welfare Canada.

The duties of the appellant's employment were primarily performed at the hospital.

The appellant received her pay cheque at the hospital issued by Supply and Services Canada, Winnipeg District Services office, 344 Edmonton Street, Winnipeg.

The hospital is a federally funded hospital which provides hospital services primarily to people at Norway House Indian Reserve. Approximately 80 per cent of the persons served by the hospital are status Indians.

From the evidence, the hospital is a general acute care hospital built by the Government of Canada in response to the Government of Canada's decision to provide for the health care of Indians. The hospital also serves the non-treaty settlement adjacent to the reserve. The funds for the status Indians who use the hospital comes from Health and Welfare Canada. Specified funds may be found in the estimates for Health and Welfare Canada for medical health services for Indians.

These funds are specifically designated in the estimates for this department as funds for Indian Health Services. Mr. Keith Cale, Assistant Regional Director, Health and Welfare Canada in Manitoba, who also gave evidence in the Kirkness decision, supra, indicated on cross-examination that the specific funding for this hospital could be traced back through the estimates that lead to the appropriation of funds that Parliament passes.

Employment earnings situs analysis

The appellant is a status Indian residing on the Norway House Indian Reserve who is in receipt of employment earnings from her employment at the hospital.

The Norway House Indian Hospital so designated in the many documents filed before this Court was built with funds by the government of Canada to “accommodation for Indian Health Services patients” (Exhibit R-1). The hospital is built on non-reserve lands adjacent to the Norway House Indian Reserve; this hospital replaced an old hospital built on reserve lands.

The appropriation by Parliament for funds to operate Health and Welfare Canada are not specific in the legislative act as to the use of the funds. However, the designation of the funds as indicated can be found in the documentation behind the appropriation. Non-treaty patients who have need of the hospital are not refused and are separately covered in terms of health care costs.

The establishment of the hospital pursuant to the decision to provide health care to Indians by the government of Canada; the present and continuing funding of the health services at the Norway House Indian Hospital by the government of Canada and the specific location of the hospital in relation to the reserve lands including the hospital it replaced; it is concluded the employment earnings of the appellant are deemed to be situated on a reserve pursuant to paragraph 90(1)(a) of the Indian Act.

Decision

The appeal for the taxation years in question is allowed. The matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the employment earnings of the appellant for the taxation years in question as a result of her employment with the Norway House Indian Hospital are deemed to be situated on a reserve pursuant to paragraph 90(1)(a) of the Indian Act, therefore are exempt from taxation pursuant to paragraph 87(1)(b) of the Indian Act.

Appeals allowed in part.