Date: 19980318
Docket: 97-891-IT-I
BETWEEN:
JOHN MCRAE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bonner, J.T.C.C.
[1]This is an appeal from assessments of income tax for the
Appellant’s 1991, 1992 and 1993 taxation years. The appeal
is governed by the Informal Procedure. The assessments in issue
were made on the basis that section 87 of the
Indian Act [1] did not operate to exempt the Appellant from tax
under section 5 of the Income Tax Act on his income from
employment by Seaspan International Ltd. The Appellant is an
Indian as defined by the Indian Act. At all relevant times
he resided on a reserve. He contends that one third of his
employment income is exempt primarily because it was paid in
respect of time when he was standing by at his home on the
reserve awaiting a call from his employer requesting that he
report for duty.
[2]Section 87 of the IndianActprovides in
part:
(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,
(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.
[3]Paragraph 81(1)(a) of the Income Tax Act
provides:
There shall not be included in computing the income of a
taxpayer for a taxation year,
(a) an amount that is declared to be exempt from income
tax by any other enactment of the Parliament of Canada, other
than an amount received or receivable by an individual that is
exempt by virtue of a provision contained in a tax convention or
agreement with another country that has the force of law in
Canada;
[4] It was common ground that:
The appellant is a status Indian, within the meaning of the
Indian Act.
The appellant resides, on the Kwaw-Kwaw-Apilt Reserve, a
reserve within the meaning of the Indian Act, and did so
during each of the taxation years the assessments in respect of
which are the subject of this appeal.
In each of the taxation years in issue the appellant earned
income resulting from his employment under the terms of a
collective agreement between Seaspan International Ltd. and the
International Union of Operating Engineers, Local 115.
The appellant received payment in respect of all of his
employment income at his home on the reserve.
[5]Seaspan is a corporation engaged in the business of marine
transportation. Its offices are located in North Vancouver. It
employed the Appellant as a member of the crew of its log barge,
the Seaspan Rigger.
[6]The Appellant’s work involved loading logs onto the
barge at various points on the coast of northern British Columbia
and Alaska and, on occasion, assisting with the unloading of the
barge at delivery points in southern British Columbia. There
was no suggestion that either Seaspan or its business was in any
way connected with Indians or located on a reserve. Subject to an
exception which will be discussed later the Appellant’s
status as an Indian was not relevant to his employment.
[7]The thrust of the Appellant’s case was that one third
of his employment income was property situated on a reserve
within the meaning of section 87 of the Indian Act because
it was at his home located on a reserve that he earned salary
while waiting for telephone calls from his employer notifying him
that he was required to attend for work on the employer’s
barge. To this “connecting factor” between employment
income and reserve the Appellant adds firstly that Seaspan mailed
his pay cheque to him at his home on the reserve and secondly
that, during part of the three year period in issue, Seaspan was
able to load logs in Alaskan waters only because the work was
performed by Indians, namely, himself and his brother.
[8]Although the Appellant was continuously employed during the
period in issue the nature of his employment was such that he was
actually engaged in the work which he was employed to do for
relatively short periods of time. The crew of the Rigger,
including the Appellant, was assigned to work exclusively on that
barge. The primary task of the crew was to load the barge. The
crew did not travel on the barge while it was being towed,
whether loaded or empty. When loading was completed the Appellant
and other members of the crew were flown home. The barge was
designed for self-unloading. Two members of the six person crew
were required to stand by for a call from Seaspan to assist if
the self-unloading process did not proceed as planned. This
obligation was assigned in rotation and thus the Appellant was on
stand-by in respect of one unloading out of three. Otherwise the
Appellant could expect that once the Rigger was loaded his
services would not be required again until the barge had
completed a round trip and it was once again necessary to meet it
and to load it. A typical round trip took about six days.
[9]The Appellant worked pursuant to collective agreements
between Seaspan and the International Union of Operating
Engineers. His basic work schedule as fixed by the agreements was
four weeks on-duty and two weeks free and clear of duty. It was
only during the on-duty period that the Appellant was required to
respond to calls from Seaspan to travel to the place where the
Rigger was to be loaded, to load it and to stand by for
unloading.
[10]The Appellant’s position was that during the four
week on duty portion of the six week work cycle he was on call 24
hours a day seven days a week; that, when not engaged in loading
or in travelling between home and places of loading, he was
required to stand by to receive telephone calls from Seaspan
summoning him to duty; that the place where he did stand by was
his home on the reserve and that the portion of his annual salary
attributable to the time spent at home was personal property
situated on the reserve exempt under section 87.
[11]The factual situation as portrayed by the Appellant
greatly overstates the significance of his presence at home in
the income earning process. Each of the two collective agreements
in force during the taxation years in question provided:
Every effort will be made to notify the employees of calls to
work to eliminate having to standby at home for indefinite
periods.
Evidence given by Bernard Krueger, head loader on the Rigger,
established that the effort called for by that clause was made
and that the time which the Appellant was obliged to spend at
home waiting for phone calls was very limited. The Seaspan office
informed Mr. Krueger two or three trips in advance of the places
to which the Rigger was to travel. Mr. Krueger promptly passed
that information on to the rest of the crew. It was not difficult
to estimate the duration of the voyages. On trips home after the
Rigger had been loaded Mr. Krueger usually discussed with crew
members the time when he expected to make the next telephone call
to them in order to advise them of a flight departure time. His
practice was to call crew members at either 8 a.m. or 6 p.m. at
least twelve hours before the time fixed for departure to meet
the Rigger.
[12]The Appellant engaged in hobbies such as horse racing and
other sideline activities which took him away from his home for
substantial periods of time. As a result when Mr. Krueger
attempted to contact the Appellant he frequently experienced
difficulties in reaching him. It was only when Mr. Krueger was
able to persuade the Appellant to buy a telephone answering
machine that the problem was solved. Members of the crew of the
Rigger were not expected to sit at home during the four-week
period awaiting emergency calls to duty. There was a conflict in
the evidence on this point. I prefer the testimony of Mr. Krueger
to that of the Appellant and of the witness Roy Hall both of whom
appeared to be less objective than Mr. Krueger.
[13]No connection was established between any specific amount
of employment income received by the Appelant and time spent by
him at his home. The Appellant was, according to the collective
agreements, entitled to a monthly salary and his theory is that
he earned part of that salary while at home. The evidence of Roy
Hall, a fellow worker of the Appellant who had assisted in the
negotiation of the collective agreements, seems to have been
tendered in support of this theory, but, on this point, the
weight of Mr. Hall’s testimony is greatly diminished by the
leading questions which were put to him. The collective
agreements contain numerous provisions calling for time credits
to the employee in respect of specific requests for stand-by, for
time spent travelling, for call-outs during rest period and for
premium pay. The agreements also require Seaspan to record
“the number of hours an employee works, travels or lays
over”. The precise relationship between the salary and
provisions creating entitlement to payment based on hourly
credits was not established. It seems that the salary served as a
base or minimum and as a reference point for the calculation of
overtime. The evidence does not permit any computation either of
the time actually spent by the Appellant at home receiving or
awaiting calls from Seaspan or of any specific amount of
remuneration attached to that time.
[14]Evidence was given that during part of the period in issue
Seaspan was able to load barges in Alaskan waters only because
the work of loading was performed by the Appellant and his
brother. At the time, as a result of a labour dispute, Canadian
workers were prohibited from doing work of the type in question
in the United States. Native persons were exempted from the
prohibition. The work done by the Appellant in Alaska was not
performed on a reserve within the meaning of the Indian
Act.
[15]Assuming that the Appellant was paid some amount for time
spent awaiting calls from Seaspan the analysis of the effect of
section 87 of the Indian Act on the taxation of that
income must start with the decision of the Supreme Court of
Canada in Nowegijick v. The Queen, [1983] 1 S.C.R. 29.
That case stands for the proposition that income from employment
is personal property for purposes of the exemption from taxation
provided by the Indian Act. The decision also provides
general guidelines to the interpretation of section 87 including
those found in the following passage at page 41 of the reasons of
Dickson J. speaking for the Court:
We must, I think, in these cases, have regard to substance and
the plain and ordinary meaning of the language used, rather than
to forensic dialectics. I do not think we should give any refined
construction to the section. A person exempt from taxation in
respect of any of this personal property would have difficulty in
understanding why he should pay tax in respect of his wages. And
I do not think it is a sufficient answer to say that the
conceptualization of the Income Tax Act renders it so.
[16]In Mitchell v. Peguis Indian Band, [1990] 2 S.C.R.
85 (SCC) La Forest J. discussed the purpose of the exemptions
from taxation and distraint contained in sections 87 and 89 of
the Indian Act. At page 130 he stated:
The exemptions from taxation and distraint have historically
protected the ability of Indians to benefit from this property in
two ways. First, they guard 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 if Indian affairs.
Later, on page 131, La Forest J. noted that the legislative
purpose which underlies sections 87 and 89 was not to afford
unlimited protection. He stated:
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.
[17]In Williams v. Canada, [1992] 1 S.C.R. 877 the
Supreme Court of Canada had occasion to consider the situs of
unemployment insurance benefits for purposes of the section 87
exemption. Gonthier J. reviewed the earlier decision of the Court
in Mitchell and stated at page 887:
The purpose of the situs test in section 87 is to
determine whether the Indian holds the property in question as
part of the entitlement of an Indian qua Indian on the
reserve. Where it is necessary to decide amongst various methods
of fixing the location of the relevant property, such a method
must be selected having regard to this purpose.
The Court rejected the view that the situs of property for
purposes of section 87 was to be determined by conflict of laws
principles which look exclusively to the residence of the debtor,
and stated that the test for situs under the Indian Act
must be constructed according to the purposes underlying that
Act. At page 892 Gonthier J. stated:
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 an erosion of the
entitlement of an Indian qua Indian on a reserve.
[18]It should be noted that in this case the Appellant
restricted his claim for exemption to one-third of his employment
income despite the fact that all of his income from that source
was paid by cheque mailed by Seaspan to him at his home on the
reserve. Clearly the place to which the cheque is mailed was not
and cannot be regarded as a connecting factor on which great
weight can be placed. The arrangement for mailing pay cheques to
an address on a reserve is one which can readily be manipulated
for reasons unrelated to the purpose served by
section 87.
[19]Of much greater importance as a connecting factor is the
place of performance of the duties of employment which gave rise
to the Appellant’s entitlement to receive the payments
which have been subjected to taxation under section 5 of the
Income Tax Act. Here all or virtually all of such duties
appear to have been performed off the reserve. The Appellant did
of course receive telephone calls at home and he did respond to
them. However the connection between time spent in the home
receiving those calls and the receipt of employment income is, at
best, tenuous. The calls can more aptly be described as calls to
work than as calls in the course of work. I cannot accept the
proposition that the selection of a home located on a reserve as
a place for the receipt of work-related phone calls is, standing
virtually alone, sufficient to identify any part of the income as
situated on a reserve. The purposes which underlie
section 87 are not, in my view, well served by the
dissection of income received from a single source into tiny
components and the assignment of a situs to each. In this regard
I refer to the passage which I have quoted from in Nowegijick,
supra. The Appellant’s personal status as an Indian,
which enabled him to work in Alaskan waters, is unrelated to the
point now in dispute, namely, the place where his employment
earnings were situated. This case must be viewed as one in which
the Appellant emerged from the reserve to earn income by working
for an enterprise unrelated to Indian bands and to Indian lands.
Seaspan’s offices, barges, business activities and
clientele were all part of the ordinary commercial mainstream. In
my view no part of the Appellant’s income from Seaspan is
exempt under section 87. For the foregoing reasons, the appeal
will be dismissed.
Signed at Ottawa, Canada this 18th day of March 1998.
"Michael J. Bonner"
J.T.C.C.
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