Citation: 2011 TCC 296
Date: 20110609
Docket: 2007-2806(IT)I
BETWEEN:
BARBARA NAHWEGAHBOW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-3098(IT)I
AND BETWEEN:
THERESA SHILLING,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-486(IT)I
AND BETWEEN:
CONNIE HANSENBERGER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre J.
[1]
These three appeals
were heard one after the other on the same day and the day after the hearing of
the appeals of Michele Baptiste (2007-2261(IT)I). All these appeals have in
common the fact that the appellants’ employer was Native Leasing Services (NLS).
Issue and preliminary remarks of the parties
[2]
The issue in all the appeals
is whether the employment income received by the appellants from NLS in
different taxation years is taxable pursuant to sections 2, 3 and 5 of the Income
Tax Act (ITA), or whether it is exempt from income tax pursuant to
paragraph 81(1)(a) of the ITA. The appellants are of the view that their
employment income should be considered as personal property of an Indian
situated on a reserve within the meaning of section 87 of the Indian
Act (IA) and therefore should be exempt from taxation. The
appellants rely principally on the Supreme Court of Canada’s decision in Nowegijick v. The
Queen, [1983] 1 S.C.R. 29, to argue that the situs of
their employment income was a reserve because the employer’s residence was on a
reserve.
[3]
The respondent, on the
other hand, argues that these appeals are related to over 1,000 other appeals
before the Tax Court of Canada involving workers from the same placement
agency, NLS, or its sister company O.I. Employment Leasing Inc. (OI).
The issue raised here has been considered by this Court, the Federal Court of
Appeal and the Supreme Court of Canada and the law with respect thereto is well
settled. In considering whether employment income is situated on a reserve,
various connecting factors have to be taken into account, of which the location
or residence of the employer is one. Among the others are the nature, location
and surrounding circumstances of the work performed by the employee (including
the nature of any benefit that accrued to the reserve from that work), and the
residence of the employee. The respondent argues that it was held in Horn v.
The Queen, 2008 FCA 352, and Rachel Shilling v. M.N.R., 2001
FCA 178, that the interposition of NLS as the employer does not
significantly connect the employment income to a reserve in a manner relevant
to section 87 of the IA. The respondent submits that the appellants
carried out their income-earning activities in the “commercial mainstream”, and
did not receive employment income that was situated on a reserve as
contemplated by section 87 of the IA.
Relevant legislative provisions
Income Tax Act
81. (1) Amounts not included in income –
There shall not be included in computing the income of a taxpayer for a
taxation year,
(a) Statutory exemptions [including Indians] – an amount that
is declared to be exempt from income tax by any other enactment of Parliament,
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;
Indian Act
87(1) Property exempt from taxation –
Notwithstanding any other Act of Parliament or any Act of the legislature of a
province, but subject to section 83 and section 5 of the First Nations
Fiscal and Statistical Management Act, the following property is exempt
from taxation:
(a) the interest of an Indian or a band in reserve lands or
surrendered lands; and
(b) the personal property of an Indian or a band situated
on a reserve.
[Emphasis
added.]
Facts admitted by consent through the production of
the Statement of Agreed Facts (Exhibit R-1), of the Agreed Statement of Facts in
Roger Obonsawin v. Her Majesty the Queen (Exhibit R-1, Tab A), and of the
Supplemental Statement of Agreed facts (Exhibit R-2)
[4]
All the appellants were
employed by NLS, a corporation owned and operated by Roger Obonsawin, who is a
status Indian for the purposes of the IA. NLS’s head office is on the Six
Nations of the Grand River Reserve (Six Nations) and is part of a group
of companies all owned by Mr. Obonsawin (OI Group). Mr. Obonsawin
is a member of the Odanak First Nation on the Odanak reserve, but he has never
lived on that reserve. The OI Group provides consulting services and
employment placement services to employers and employees in Canada’s Native communities. NLS was created in 1991 to
lease employees, whether status or non-status, to Native organizations. The NLS
concept of leasing employees is that they rent out an employee and provide all
administration and human resources support services as the employer. The
employees get their instructions and direction from the placement organization for
which they work and to which they report. NLS is responsible for the payroll,
and invoices the placement organization on the basis of employees’ time sheets
approved by the on-site supervisor. As regards banking, the operating accounts
of NLS were off-reserve up until 1996. Thereafter, it had some on-reserve bank
accounts. The key functions of the employee-leasing operations were performed
on the Six Nations Reserve by an administrative staff numbering from 8 to 15
people, depending on the year. All NLS files were kept at the Six Nations
Reserve office. The rent paid to the Six Nations Band Council and the salary
and benefits paid to on-reserve staff, which constituted the direct benefits to
the reserve, were approximately $230,000 to $240,000 for the years 1995 and
1996. There were other direct benefits resulting from the training of personnel
who lived on the reserve, but those benefits are difficult to quantify. The entire
gross revenue of NLS is generated off-reserve. It is estimated that the OI
Group had approximately 800 employees by 1997, 1,000 in 1999 and as many as 1,400
in the years between 1999 and 2006. The only functions carried out on-reserve were
administrative functions. In 1995 and 1996 respectively, NLS had gross revenue
of $15,692,945 and $13,344,801, all of which was derived from the work of NLS
employees off-reserve. 95% of NLS’s costs were the wages and benefits paid to
its employees, who were contracted to off-reserve organizations. These costs of
employees’ pay and benefits are funded by the clients in what is essentially a
flow‑through whereby the employees’ pay and benefits are deposited by the
client in NLS’s bank account to be drawn down (less the service fee) to fund
NLS’s payroll for the employees leased to the client. Roger Obonsawin has no
financial statements for NLS after 1997 although the business continues to
operate.
BARBARA NAHWEGAHBOW
[5]
Barbara Nahwegahbow, a
status Indian, is a member of the Whitefish River First Nation in northern Ontario. She moved to Sudbury at about the age of 17 to study
Social Services at Cambrian College and then went to Toronto to continue those studies at Humber
College, graduating in 1972. Her mother and few siblings still live on the
reserve.
[6]
After her graduation
she worked for different provincially or federally funded organizations for Aboriginal
people. She was hired by NLS in 1992 to work for Anishnawbe Health Toronto (AHT)
in downtown Toronto as its executive director. (Exhibit R-3, Volume
1, Tab 2A). Her work entailed little travel to reserves. AHT is a community
health centre that is funded by the provincial and federal governments and
which focuses on improving the health and well-being of Aboriginal people by
providing traditional healing within the framework of a multidisciplinary
health care model. AHT provides services to Aboriginal people regardless of the
First Nation or reserve to which they belong (Exhibit R-2, Tab 1A). It was the
sole organization in the country providing that kind of service. It was only
for the years 1995 through 1998 that Ms. Nahwegahbow’s employment income was
considered as being taxable. It had not been for the previous years. Her role
did not change during all the years she was with AHT, but the organization
grew. The staff increased as did the number of people receiving services.
During the years from 1992 to 1998, the year she left AHT, that organization’s
operating budget was approximately $2 million. She worked personally with
a healer on the Six Nations Reserve who would receive AHT clients and staff for
healing ceremonies. When First Nations people came to Toronto
to be treated at AHT, the provincial government financed their travel and their
accommodation in a hostel for First Nations people (Transcript, pp. 7‑35).
[7]
In cross-examination,
Ms. Nahwegahbow acknowledged that she was succeeded as the executive director
of AHT by Joseph Hester, and she said she imagined that his duties were the
same as hers had been (Transcript, p. 35).
CONNIE HANSENBERGER
[8]
Connie Hansenberger is a
status Indian and a member of the Mississauga First Nation in Ontario. In 1993, she was hired by NLS to work for Aboriginal
Legal Services in downtown Toronto. She signed a contract of employment with
NLS (Exhibit R‑3, Tab 1A) with the understanding that her
employment income was exempt from taxation (Transcript, pp. 44-45).
She worked for NLS until 2006. From 1993 till 2003, she provided legal support services
as a Native Family Court worker, assisting Aboriginal persons with matters in
Family Court. She dealt with a very high volume of people on a daily basis
(40,000 Native people in 8 years). A lot of them were fleeing abusive
relationships on reserves and came to her for help in obtaining custody orders
(Transcript, pp. 46‑47). From 2003 to 2006, she performed the
duties of a tenant rights advocate, educating the community regarding
homelessness and on landlord and tenant issues. From March 2006 till November
2006, NLS contracted her services to Anduhyaun Inc., located in downtown Toronto. This is an organization providing services to
aboriginal women and children – regardless of the First Nation or reserve to
which they belong – leaving abusive situations; it addresses the basic needs of
safety, food and shelter. Ms. Hansenberger was the director of resident support
services, and her duties included guiding the activities of the resident
support programs and being responsible for the management of those programs. In
2007 and 2008, NLS contracted her services to Nishnawbe Homes Inc., located in
downtown Toronto. This is a non-profit organization
subsidized by the city, provincial and federal governments; it provides safe,
secure housing for the Native homeless and underhoused in Toronto, mainly for students coming from reserves to study in
the city, and for low-income people. It develops within its housing units a
strong sense of community and support in the context of Native cultural values
and encourages an environment free from alcohol and drugs. Nishnawbe does not,
however, provide on-reserve housing. Ms. Hansenberger performed the duties
of building manager, and was responsible for managing building and program
operations, and also for collecting rent.
[9]
The years at issue for
Ms. Hansenberger are 1995, 1999, 2000 through 2006, and 2008. During all those
years, Ms. Hansenberger resided in Toronto.
She was born of a status-Indian mother and a non-Native father in Sault Ste.
Marie, and grew up in North
Bay. She went to college in Belleville and attended university in Toronto.
She studied social services.
[10]
In all cases, her
services as an employee were provided to Aboriginal people, regardless of the
First nation or reserve to which they belonged (Exhibit R‑2, Tab 1C).
THERESA SHILLING
[11]
Theresa Shilling is a
status Indian and a member of the Chippewas of Rama First Nation located in
Rama, Ontario. She was hired by NLS to work for AHT in
downtown Toronto for the years 2000 through 2004, and 2006
and 2007 to perform the duties of a traditional counsellor. As such, she
provided counselling services in Toronto to Aboriginal people – regardless of the
First Nation or reserve to which they belonged – on health issues, on their
healing path, and on social issues such as addiction and family violence. Her
work was performed in Toronto, except for a few days when she travelled
to reserves with clients who attended healing lodges, or when she attended
staff retreats or ceremonies (as described in Exhibit R‑2, Tab 1B,
pp. 3 and 4). During all the years at issue, she lived in Toronto. Her clients came mostly from Toronto, but some came directly from a First Nation reserve
for a session, which lasted an hour.
[12]
Ms. Shilling was born
in Orillia and grew up in the Rama First Nation and
Curve Lake First Nation. Both her parents were Natives. She moved to Toronto in 1969 to get away from the reserve (Transcript, p. 68).
She went to college in Toronto and in North Bay, and
studied in the field of social work. She married a non-Native and had her
children in Toronto. Before the years at issue, she worked for
Native organizations in Toronto and Peterborough. She signed a contract of employment with NLS in May 2000 (Exhibit R‑3,
Tab 3A) with the understanding that her employment income would be exempt
from taxation (Transcript, pp. 72-73).
Appellants’ submissions
[13]
Counsel for the
appellants relied on the same arguments as those made in the Michele Baptiste
case (which was heard before me the day before these appeals) with respect to
the interpretation of section 87 of the IA. In his arguments, counsel
focused on how the connecting factors apply to the three appellants herein.
[14]
Counsel for the
appellants referred to Williams v. Canada, [1992] 1 S.C.R. 877 (QL),
for guidance when considering the factors to be weighed in determining whether
or not income (as personal property of the appellants) is property held by an
Indian qua Indian on a reserve. The question is the weight that should be given
to each factor in answering the question whether taxing that form of property
in that manner would amount to the erosion of the entitlement of the Indian qua
Indian to the property. A connecting factor is only relevant insomuch as it
identifies the location of the property in question for the purposes of the IA
(see Williams, supra, paragraph 35).
[15]
With respect to the
first connecting factor (the residence of the debtor), the employer here is located
on-reserve, and the situs of the debtor is often the most important factor when
determining whether income is located on-reserve.
[16]
With respect to the
second connecting factor (the benefit conferred on the First Nation), the
employer is conferring significant benefits on the reserve community. It
employs 8 to 15 members of the Six Nations band on-reserve and the salaries and
benefits for the office staff located on the Six Nations reserve totalled
almost $250,000. The OI Group also contributed approximately $21,000 to the
Band Council in rent. Roger Obonsawin’s vision in starting the OI Group
was to create a network of positions across Canada
which could enable First Nations people to get jobs and to increase and improve
their skills.
[17]
With respect to the
third connecting factor (the location and surrounding circumstances of the work
performed), all three appellants dedicated their work to the service of Aboriginal
people. Ms. Nahwegahbow and Ms. Shilling both worked for AHT helping First
Nations people off-reserve by developing health programs and counselling services
dealing with addiction and other social problems. Ms. Hansenberger
provided legal support services to almost 40,000 Aboriginal people. In 2006,
she provided assistance to abused women with Anduhyaun, and starting in 2007,
she was involved in providing assisted living for First Nations people as the
manager of Nishnawbe Homes. There is no doubt that assisting Aboriginal
community members with respect to issues of health and family counselling is
beneficial to those communities.
[18]
With respect to the
fourth connecting factor (the residence of the appellants), it should be given
little weight. The appellants’ place of residence does not make much difference
here. All of the appellants left their community to go to school or to seek job
opportunities.
[19]
Most of the connecting factors
demonstrate that the situs of the employment income was a reserve, and that
income should therefore be exempt from taxation.
Respondent’s submissions
[20]
Counsel for the
respondent also relied on arguments made before me in the Michele Baptiste case
argued before me the day before the hearing of these appeals. He added that the
mere fact that a person is a status Indian does not indicate that the person’s
income is located on-reserve. With respect to the three appellants here, none
of them resided on-reserve.
[21]
While it is true, he
argued, that the employer was located on-reserve, the location of the work
performed, the nature of the duties and the circumstances surrounding the
employment are more important factors.
[22]
All three employees
performed their duties in downtown Toronto. In an earlier
case, Rachel Shilling v. M.N.R., 2001 FCA 178, Rachel Shilling (not the
same person as the appellant Theresa Shilling in the present case), was working
for AHT as acting program director. The court held that her employment income
was taxable, and yet she was on her reserve more often that the appellant Theresa
Shilling here, who spent 3 to 9 days a year on reserves. In another case, Hester
v. The Queen, 2010 TCC 647, Mr. Hester worked for AHT in exactly the same
position (executive director) as that which Ms. Nahwegahbow had held, and his
income was considered taxable by this Court.
[23]
With respect to the
circumstances surrounding the employment, counsel for the respondent argued, AHT’s
services were provided for the Aboriginal community in Toronto.
It was only incidentally that people came directly from reserves to use those
services. Further, there is no evidence that the provision of services by the
appellants was integral to the life of reserves. The vision of AHT is to seek to
establish a strong, independent and self-sufficient Aboriginal community in Toronto (Exhibit R‑3, Volume 2, Tab 3B,
p. 360). Similarly, AHT provides services to members of the Aboriginal
community who are not necessarily status Indians. It is a community health
clinic in Toronto offering specialized expertise.
[24]
Similar facts have been
analyzed by this Court in previous cases, argued counsel for the respondent. In
Googoo v. Canada, 2008 TCC 589, McIvor v. Canada, 2009 TCC
469, Roe v. Canada, 2008 TCC 667, Hester v. The Queen, 2010 TCC
647 and Robinson v. The Queen, 2010 TCC 649, in similar
circumstances, it was decided that employees of the OI Group were earning
taxable employment income even though the Six Nations Reserve was receiving a
quarter million dollars worth of benefits.
[25]
Counsel for the
respondent pointed out that it is an agreed fact that there is no evidence that
the appellants’ home reserves received any direct benefit as a result of their
work.
Analysis
[26]
Both counsel referred
to the arguments they had made before me in the Michele Baptiste case, and I
will not repeat here my analysis with respect to the application of the
connecting factors test for the purpose of determining the location of the
employment income. I consider that that analysis applies equally in the present
appeals.
[27]
With respect to Barbara
Nahwegahbow and Theresa Shilling, they both worked for AHT. Ms. Nahwegahbow did
exactly the same work as executive director of that organization as did Joseph
Hester, who succeeded her after her departure. The case of Mr. Hester was
decided by this Court (2010 TCC 647) and I do not believe that the evidence presented
before me by Ms. Nahwegahbow warrants a different outcome than that for Mr. Hester.
Likewise with respect to Theresa Shilling, I do not think that the result in
her appeal should be different than that in Rachel Shilling, supra,
a case in which Rachel Shilling was also working for AHT in downtown Toronto and
held various positions involving the providing of assistance for off-reserve
Native people in Toronto. Like Rachel Shilling, Theresa Shilling
primarily performed her work in Toronto, although she did visit reserves
occasionally as part of her duties.
[28]
Finally with respect to
Ms. Hansenberger, she worked for Aboriginal Legal Services in Toronto (ALST)
during the 1995 to 2006 taxation years. ALST is a non-profit organization that
serves the urban Aboriginal community off-reserve. In 2006, she worked for
Anduhyaun Inc. in Toronto. That organization provides services to
women and children leaving abusive situations, regardless of the First Nation
or reserve to which they belong. Finally, Ms. Hansenberger worked in 2007 and
2008 for Nishnawbe Homes. That organization provides safe, secure housing for
the Native homeless in Toronto regardless of the First Nation or reserve
to which they belong. In all cases, Ms. Hansenberger’s work benefited an
off-reserve clientele. As was said in the Rachel Shilling decision, supra,
at paragraphs 51-52, “merely because the nature of employment is to provide
services to Indians does not connect that employment to an Indian reserve as a
physical place. . . . Given the limited purpose of paragraph 87(1)(b) of
the IA, the fact that the employment at issue involves providing social
services to off-reserve Native people, is no reason for conferring preferred
tax treatment under that provision.”
[29]
All three appellants
lived in Toronto, worked in Toronto
and provided services principally to off-reserve Aboriginal or Native people. I
am of the view that, apart from the location of the employer, NLS, the connecting
factors, i.e. the location of the work and the nature and circumstances of the
employment, including any benefit to a reserve, point to an off-reserve
location for the appellants’ employment income. The appellants’ work was not
tied to a specific reserve and there is no basis for concluding that the
taxation of the employment income they received from NLS would result in the
erosion of their entitlement to property held as Indians qua Indians on a
reserve (see Roe, supra, and Robinson, supra). As indicated in Desnomie v. The Queen, 2000 DTC
6250 (FCA), at paragraph 10, the question of the erosion of the entitlement of
an Indian qua Indian on a reserve has to be determined by reference to the
person whose income is involved and not by reference to the different reserves
that are benefiting directly or indirectly from the services of this person.
[30]
I therefore conclude
that the employment income of all the appellants is not exempt from taxation
pursuant to paragraph 81(1)(a) of the ITA and paragraph 87(1) (b)
of the IA. All the appeals are dismissed.
Signed at Ottawa, Canada, this 9th
day of June 2011.
“Lucie Lamarre”
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