Citation: 2008TCC589
Date: 20090130
Docket: 2007-49(IT)I
BETWEEN:
MAUREEN GOOGOO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-496(IT)I
AND BETWEEN:
DELORES JOYCE MAGUIRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-1710(IT)I
AND BETWEEN:
ELIZABETH GRANT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-4037(IT)I
AND BETWEEN:
BRIDGET A. SMITH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-846(IT)I
AND BETWEEN:
TRINA ROACHE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-2116(IT)I
AND BETWEEN:
B. RENEE MASCHING,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-53(IT)I
AND BETWEEN:
NOEL KNOCKWOOD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rossiter, A.C.J.
[1] These appeals concern
different taxation years for each of the Appellants, ranging from 1998 to 2005.
At issue is the right to the exemption of income tax for Indians, pursuant to
s. 87(1)(b) of the Indian Act and s. 81(1)(a) of the Income
Tax Act. These appeals proceeded on the basis that some evidence was
introduced as common evidence, while other evidence was introduced as specific
only to certain Appellants.
Introduction
[2] The Appellants were
status Indians and employees of Native Leasing Services (“NLS”). As employees
of NLS they performed work and services which were thought to be for
predominantly Aboriginal purposes with various placement organizations.
[3] The Appellants
claimed their personal property, employment income, was exempt from taxation by
virtue of paragraph 87(1)(b)
of the Indian Act, R.S.C. 1985, c.I-5. The Respondent disputed the
exemption alleging that an application of the “connecting factors test” does
not connect the property of the Appellants to a reserve and therefore is not
exempt from taxation. The Appellants assert the property is situated on a
reserve and therefore exempt from taxation. The Appellants were reassessed by
the Minister of National Revenue (“Minister”) on the basis their income was not
situated on a reserve.
Issue
[4] The issue common to
all appeals is whether the employment income earned by the Appellants is “the
personal property of an Indian… situated on a reserve” within the meaning of
paragraph 87(1)(b) of the Indian Act, and therefore exempt from
taxation pursuant to paragraph 81(1)(a) of the Income Tax Act,
R.S.C. 1985, c. I (5th Supplement) (“ITA”).
Facts
1. Facts Common To All Appeals:
[5] Mr. Roger Obonsawin is a status Indian member of
the Odanak Band of the Wabenaki Nation which has a membership in Quebec and the
United States. He has never lived on a reserve.
Mr. Obonsawin lives with Ms. Ljuba Irwin, his life partner, in both
personal and business aspects. Ms. Irwin is a non‑Aboriginal person
and is the Executive Director of NLS. Ms. Irwin resides in Toronto as does Mr. Obonsawin to some
extent. As a non‑Aboriginal person, Ms. Irwin cannot live on a
reserve and Mr. Obonsawin does not and cannot live on the Six Nations
Reserve as he is not a member of the Six Nations Reserve. The NLS
Administrative office is located on the Six Nations Reserve. All of the Appellants were members
of reserves or nations different than Mr. Obonsawin’s and all of the
Appellants, except for Renee Masching, were members of different reserves
other than the Six Nations Reserve.
[6] Mr. Obonsawin became involved with Native
Friendship Centres (“NFC”) while attending Ryerson College. NFC’s are mainly located in urban
areas and as such most of their services, such as cultural activities, day care
centres and private counseling for Aboriginals, are provided off reserve. He
eventually became Executive Director of a NFC in Red Lake, Ontario, from 1972 to 1974, working in
housing advocacy delivered in an Aboriginal, cultural, and relevant manner. He
later became President of the National Association of Friendship Centres in Ottawa, followed by a term as Executive
Director of the Association, and then seven years as Executive Director of the
Toronto Indian Centre working with youth on educational initiatives and
becoming involved in a task force for urban services. In 1981,
Mr. Obonsawin formed a consulting company, O.I. Employment Leasing Inc.
(“O.I.”) which provided consulting to Native communities, with financial
support from federal and provincial grants. In 1987, Mr. Obonsawin decided
to enter into Native leasing and established NLS as a sole proprietorship. NLS
provides services to the Native sector while O.I. provides services to the non-Native
sector, with both entities being owned by Mr. Obonsawin.
[7] The concept of the leasing services allowed Native
persons employed with a placement organization to become employees of NLS. NLS
would then lease their services back to the placement organization. NLS
accepted responsibility for and liability of the employee but the employee
worked in and reported to the placement organization and received work
assignments from the placement organization. NLS would invoice the placement
agency for the salary and benefits of the employee and be paid a service fee of
approximately 5%, which was sometimes paid by the placement organization and or
by the latter and the employee.
[8] Mr. Obonsawin used his contacts with placement
organizations to promote NLS. Because of his long history with NFCs,
Mr. Obonsawin targeted them as clients. In his recruiting publicity he
stated that if the services of NFC’s were mainly provided off the reserve, one
of the features that NLS could provide was a link to a reserve for tax
exemption purposes. In marketing to prospective NLS employees,
Mr. Obonsawin would emphasize the advantages he thought were offered by
NLS including support services, a benefit package, training and the tax exempt
status for Indian employees. Mr. Obonsawin felt that there was a need for
strengthening of the NFC’s programs, by providing a better system for training
and for educating staff. Taxation exemption was one way to accomplish the
purposes.
[9] The NLS advantage that caught the attention of a
placement organization and its employees was indeed tax exemption for status
Indians employees. In effect, the placement organization’s Native employees
would become employees of NLS and provide the same services to the placement
organization as they did previously but with a different legal employer, NLS. The
placement organization could provide a salary level higher in reality, than
others, because the employees, if status Indians, were getting their salary
exempt of tax. NLS completed all employee paperwork, including the payroll and
source deductions and provided human resources support. If an employee became
problematic the placement organization would inform NLS, would attempt to
resolve the issue(s) and, if the issue(s) could not be resolved, then the
employee was terminated. NLS would then follow through with employment
counseling.
[10] Once a Native employee of a placement organization
became an employee of NLS, the employee would provide an executed release of
liability form to the placement organization. A standard placement
agreement was generated by NLS Human Resources defining the lease position, the
annual cost, the relationship, notices if there was termination of the
relationship, as well as confidentiality and conflict of interest issues. The
Agreement would be sent to a placement organization for signature and returned
to NLS for the signature of Mr. Obonsawin. The contractual obligations by
NLS to the placement organizations were basically to provide payroll services,
training, and some benefits as well as some human resources services. Once the
placement agreement completed, a contract of employment was also completed for
each of the employees.
[11] The contract of employment is particular with respect
to the benefits chosen by the employee. Employment Insurance and Canada Pension
Plan deductions were not options of the employee as NLS was responsible for
source deductions. NLS handled all remittances, did all the filings, dealt with
modified work and return to work, kept track of vacation pay as well as paid
leave or time off and was responsible for compliance with all employer
standards legislation.
[12] Mr. Obonsawin obtained a business address for NLS
where it performed most of its business operations on Six Nations Reserve
because he thought the location of the employer may be of significance in the
cases presently before the courts with respect to the potential tax exemption
available to status Indians. All NLS files including financial and staff
records were kept at the Six Nations Reserve office. NLS also had an office in Toronto where some of NLS’s administrative
work was carried out.
[13] If a placement organization wanted to terminate its
relationship with NLS, the employees were paid up to the final day with NLS
including vacation pay. If an employee was terminated, NLS would try to place
the employee with another organization depending on what was available. The
assistance provided to terminated employees was limited to information about
Native employment opportunities. NLS issued bi-weekly newsletters which showed
opportunities that were available for employees.
[14] In any dispute between leased employees and the
placement organization the initial contact would be with a NLS Human Resources
staff. They would receive the complaint, define the issues, and speak with the
employee and the placement organization. If the issue was straightforward, they
dealt with it, if not they would go to a labour lawyer.
[15] Mr. Obonsawin felt that training was a benefit to
NLS employees as it was provided free by NLS. According to Mr. Obonsawin
this made it attractive for the placement organizations to do business with NLS.
In 1996 NLS only paid $3,979 in training and in 1997, $5,910, even though NLS
had hundreds of employees. Training was contracted out by NLS and provided by
non‑Native entities (except for the Ojibuay Language Conference and a
Counseling Workshop). No training was provided on a reserve and attendees could
be Native or non-Native. None of the Appellants took any of the training
offered. NLS would pay for the training registration but the wages and travel
of the employees would be paid by the placement organization and the training
would be treated as a work day. Also, the placement organizations provided some
training to their own employees. The training provided by the placement
organization was specific to the job services provided while the training provided
by NLS through non-Native entities was more generic in nature. NLS did not know
what training was needed by employee X or if employee X would benefit from any
particular training. Employees would have an opportunity to file a training
registration form, with their placement organization supervisor’s approval.
[16] NLS was generally paid four weeks in advance by the
placement organizations and this payment was NLS’ only source of revenue. The
placement organization would deposit invoice payments at a CIBC via a
Rapidtrans Account which allowed the invoice payments to go into the account of
NLS through a nearby CIBC close to the placement organization. NLS would
receive time cards from placement organizations and then pay the employees of NLS
accordingly, the following week. Payroll services by NLS to their employees
were initially contracted out by NLS to CIBC, then to ComCheque and then to
Certidian, all of which were non-Native and all of which operated off the
reserve. The NLS benefit package was out‑sourced to Great‑West Life
and Rice Financial, both non-Native institutions who also perform their
business off the reserve.
2. Facts Applicable to
Delores Joyce Maguire – 2007-496(IT)I
[17] The taxation years at issue are 1999 and 2001. Ms.
Delores Joyce Maguire was born and raised on the Glooscap First
Nation Reserve. At the age of 19 she married into another culture and lost her
Indian status under the Indian Act. Since her marriage, Ms. Maguire
has not lived on a reserve but she ultimately regained her Indian status.
[18] Ms. Maguire became an addictions counselor in and about
the Native community. As such she was responsible for members of the community
who wanted to pursue addiction treatment workshops and counseling. She became a
band employee of Native Alcohol Drug Abuse Counseling Association of Nova Scotia (“NADA”) headquartered at the
Eskasoni Reserve with her office on the Glooscap First Nation reserve. Ms.
Maguire became interested in Fetal Alcohol Syndrome (FAS) and became a FAS
Coordinator in NADA, bringing FAS programs to thirteen First Nation
communities.
[19] In May 1999, Ms. Maguire took a leave of absence
from her employment with NADA to become FAS Coordinator for a conference
sponsored by the Mi’kmaq Native Friendship Society (“MMNFS”). This conference,
in October 1999 in Halifax, Nova Scotia, was organized in part by Ms. Maguire. Aboriginal and
non‑Aboriginal people from all over Canada attended the conference.
[20] From October 1999 to June 2000, Ms. Maguire acted
as an FAS Coordinator, developing FAS programs accessibility to the community.
She developed pamphlets and resources for the communities and presented
workshops. Although she was based out of Halifax, Nova Scotia, she conducted workshops across Canada. The program was funded by MMNFS
which had obtained funding through the NFCS, Health Canada and other groups in Halifax.
[21] From September 2000 to August 2001, Ms. Maguire worked
under the Aboriginal Healing Foundation providing programs for workshops so
communities could understand the link between FAS and residential schools, and
how residential schools impacted the Natives. The programs were intended to
develop healing tools and offer resources for the community.
[22] Ms. Maguire was involved in a total of five workshops
including:
1) What was a residential school?
2) FAS and its connection to residential schools;
3) Welcome home reception;
4) Women celebrating;
5) Healing.
Most of the workshops were delivered at separate times
under no particular schedule in various communities. When not giving workshops
she was dealing with FAS issues upon request, which was about 50% of her time.
[23] Ms. Maguire paid 4% of her earnings as a service
fee to NLS to become an employee of NLS. She felt that for the service fee she
was paying to NLS, she received access to training but she did not take any,
nor did she receive any extra benefits per se because she already had certain
medical benefits through Health Canada. There were source deductions for Employment Insurance, Canada Pension
Plan, Worker’s Compensation and vacation pay so the only benefit for her was
the promised tax exemption status.
[24] The MMNFS had presented NLS as an option to her in
terms of employment while she was their employee. NLS officials were not
members of the Glooscap First Nation nor did NLS have any offices at the
Glooscap First Nation. Ms. Maguire had never been at the Six Nations
Reserve nor was she a member of the Six Nations Reserve where NLS’ offices were
located.
[25] The Appellant Maguire gave a release to MMNFS for her
employment in May 1999. She provided employment information to NLS on April 19,
1999, with a scheduled start date with NLS of May 3, 1999; her contract of
employment with NLS showed her start date to be September 18, 2000. Even though
her employment contract with NLS was dated September 18, 2000, the NLS signed a
placement agreement with MMNFS on May 3, 1999 for the position that she was to
occupy.
[26] In 1999, Ms. Maguire received T4’s from MMNFS
showing employment income of $29,240 which she declared in her 1999 T1. The
Minister reassessed her adding $5,687 to her 1999 income as T4 income from NLS.
In 2001, her declared income was adjusted by the Minister to include income
from NLS of $27,541.
3. Facts Applicable to Maureen Googoo – 2007-49(IT)I:
[27] The taxation years at issue are 2000 and 2001.
Ms. Maureen Googoo was born in Truro, Nova Scotia and raised by her parents on the
Indian Brook First Nation Reserve. She was trained as a journalist receiving a
B.A. with a Major in Political Science from St. Mary’s University in
May 1992. She received a Bachelor of Applied Arts in Journalism at Ryerson
University in Toronto in June 1994 and
obtained a Masters in Journalism at Columbia University in 2006.
[28] Ms. Googoo has worked in journalism for most of
her life, initially as a CBC reporter in Saskatchewan, then as a reporter with
the Chronical‑Herald Newspaper in Halifax, and from January 31, 2000 to 2006, with the Aboriginal Peoples
Television Network (“APTN”).
[29] The Government of Canada had established the Northern Broadcasting Policy and Northern Native
Broadcast Access Program
(“NNBAP”), which was introduced in a fund called the Northern Distribution
Program (“NDP”) for the purposes of establishing and maintaining extensive
radio networks since television groups still lacked an effective means of
distribution. APTN was launched on September 1, 1999 as an established
non-profit corporation, distributing broadcast national services to Aboriginal
and northern audiences of over 9 million homes via cable television direct home
and wireless service distributors.
[30] APTN’s funding was provided for by NDP, maintaining
services for 96 northern communities for Aboriginal language programs and
satellite channels. APTN was the sole recipient of funding under NDP and
transmitted CBC programming on the system to communities not served by CBC. It
currently receives revenues from service subscribers; with a 21 member board
almost half of whom are appointed to the board by the NNBAP, APTN is
headquartered in Winnipeg with presentation centres in
Yellowknife, Whitehorse and Iqualuit and newsrooms in
Ottawa, Toronto, Halifax and Vancouver.
[31] In 2003, APTN employed a staff of 84 of whom 72% were
Aboriginal. It is the first and only national Aboriginal broadcaster in the
world with the programming by, for and about Aboriginal peoples, shared with
all Canadians as well as viewers around the world. APTN programs are aimed at
both Aboriginal and non‑Aboriginal audiences, the programming including
documentaries, news magazines, dramas, entertainment specials, children’s
series, cooking shows and education programs, youth, cultural and traditional
programming, music, drama, news and current affairs, Hollywood movies, as well
as live coverage of special events and interactive programming.
[32] When Ms. Googoo started her employment at APTN,
she was to establish an APTN bureau in Halifax, but she did the job out of her parent’s home on the Indian Brook First
Nation Reserve until October 2000 from which time she operated the APTN bureau
in Halifax, until May 2005. Ms. Googoo was a
status Indian with the Shubenacadie Reserve. She lived on the Indian Brook
First Nation Reserve throughout as she thought it was good to cultivate sources
in the community and she wanted to be near her parents.
[33] Ms. Googoo was basically a one-person show for
APTN in Halifax. She covered Aboriginal events and
news of Aboriginal peoples; she would go into the field, shoot video, conduct
and tape interviews, edit the script when and if required, record same and then
ship it to Winnipeg,
Manitoba, for
additional editing. During any given week she would usually spend a day lining
up a story and then doing the story the next day, the following day returning
from the site, and doing the story line and necessary editing before shipping
the story to Winnipeg.
[34] In carrying out her duties, Ms. Googoo would
attend at various locations in Atlantic Canada where there would be major news
stories. In following the major news stories, there would be other news outlets
also on‑site including CTV and CBC. There was an arrangement made between
APTN and CTV to the effect that CTV paid APTN $300,000 for five years to set up
bureaus across the country; APTN would share facilities and feed news items to
CTV, upon request.
[35] In addition to traveling to various places in Atlantic
Canada for major news stories, Ms. Googoo would also seek out and develop
her own Aboriginal news stories. She would prepare and pitch a story to her
APTN supervisor for approval and then shoot the story herself. She would send
her video to APTN’s office in Winnipeg for
viewing, editing and publication and APTN would use the video for its weekly
news broadcast.
[36] Ms. Googoo became aware of NLS when she was taking
her training with APTN. There was a presentation by Mr. Obonsawin and
Ms. Dianne Irwin, the Executive Director of NLS, to APTN employees. The
most appealing part of the presentation was the possibility that status Indians
could receive their pay tax-exempt. She was told about the risk of signing up
as an employee of NLS (that is, that the income may not be tax‑exempt)
but she signed up with NLS in any event. Her feeling was that she was a status
Indian and she was entitled to receive a tax‑free salary. She was paid
electronically by NLS and would receive pay stubs in the mail along with
newsletters, information with respect to other employment opportunities, and
updates on court cases regarding tax exemption.
[37] Ms. Googoo was an employee of NLS from March 2000
to October 31, 2001. In July 2001, employees of APTN were told that APTN would
be terminating their agreement with NLS because the Minister had informed APTN
that they could very well be liable for taxes of the employees. Once NLS’
agreement was terminated, Ms. Googoo received an immediate offer of
employment from APTN and continued to work with APTN upon termination with NLS
in the same position. When she signed her initial contract with NLS she
declined the health benefits package.
[38] As an NLS employee, she continued to fill in APTN
timesheets for her APTN supervisor’s signature. She would accumulate her
overtime and by December 29, 2000 had accumulated 18 days of overtime. Rather
than being paid for overtime, the APTN supervisor told her to take the time in
lieu. Training and development had to be approved by her APTN supervisor,
with the course fee being paid for by APTN.
[39] Ms. Googoo made a request for, and received a
salary increase during her employment with NLS. She filled out a request for
salary increases with APTN after her performance was evaluated by her
supervisor at APTN, Bruce Spence, with the salary increase being
retroactive to January 31, 2001. While working with APTN, Ms. Googoo used
her own personal telephone, the telephone bills being reimbursed by APTN.
[40] When she became an employee of NLS, she signed a
release as employee of APTN, as well as an information sheet for NLS. This
information sheet provided the particulars in relation to her full-time
position, pay and start date. She agreed to pay a service fee (amount unknown
to her) to NLS through payroll deductions.
[41] Ms. Googoo found her arrangement with NLS both
positive and beneficial because she was able to use NLS to get income tax‑free
money; she felt that since she was raised on a reserve, section 87 of the Indian
Act should apply to her.
[42] The Minister reassessed Ms. Googoo for income
earned from NLS and added $31,384 and $34,898 to her 2000 and 2001 taxation
years respectively.
4. Facts Applicable to Renee Masching –
2007-2116(IT)I:
[43] The taxation year at issue is 2005.
Ms. Renee Masching was born in Welland, Ontario and raised in St.Catharines and Mississauga, Ontario, in a non‑Aboriginal family,
having been adopted when she was three months old. She is a status Indian and a
member of the Six Nations Reserve with the Deleware First Nation. She was not
aware of her Aboriginal background until the age of 18 at which time she
pursued her ancestry and eventually was awarded her status under the Indian Act.
[44] Ms. Masching had earned a Masters in Social
Worker, a Bachelor of Social Worker and a Bachelor of Arts in Psychology, all
from McMaster
University in 2003
and 1994, respectively.
[45] During her pursuit of Aboriginal status and her
training, Ms. Masching became interested in the Aboriginal peoples, their
problems and particularly the HIV/AIDS problems within the Aboriginal
population.
[46] In 2005, as a Research Technical Assistant with the
Canadian Aboriginal AIDS Network Inc. (CAAN), she encouraged community based
HIV/AIDS research. The research was conceived by management and directed by the
community, working with academics and people in the communities with AIDS. The
community representatives would include staff of Aboriginal AIDS organizations,
Inuit organizations including nurses from the north, elders, family members and
persons involved in Aboriginal addictions. Some of the organizations involved
both Aboriginal and non‑Aboriginal peoples. Ms. Masching assisted in
developing research skills in the community by doing community workshops and
promoting cultural understanding through role modeling.
[47] Ms. Masching has never lived on a reserve and at
all times, worked from her home in Lawrencetown, Nova Scotia. In her employment she has traveled
to Regina, Ottawa and Toronto to attend annual meetings as well as to her employer’s
head office.
[48] She had heard of the NLS through the MMNFS in Halifax. She says that in 2005 she was an
employee of NLS, not the CAAN, her original employer. In 2005 all CAAN
employees (Aboriginal and non-Aboriginal) were leased to NLS with all payroll
for CAAN in 2005 being processed by NLS. It was NLS that oversaw her work in
the broad context but the day-to-day instructions and work was with CAAN. In
her evidence, Ms. Masching said if asked who she worked for, she would probably
answer CAAN but technically her employer was NLS.
[49] She had signed an employment contract with NLS and
declined most benefits from NLS other than the statutory source deductions. She
had given a variety of information to NLS and had instructed NLS not to deduct
any income tax from her pay cheques. In 2005 she did not work on a reserve with
CAAN. The work that she did was meant to be applicable across the country and
was provided both on and off reserve throughout Canada, regardless of residency but always in the context of
Aboriginals. CRA reassessed Ms. Masching with $15,084 in additional income
from NLS for the 2005 taxation year.
5. Facts Applicable to Trina Roache – 2007-846(IT)I:
[50] The taxation year at issue is 2001.
Ms. Trina Roache was born and raised in Halifax. She is a status Indian with the
Glooscap First Nation. She obtained a B.A. in 1999 from Mt. St. Vincent University and a Bachelor of Journalism in
2000 from King’s College. She was a CBC radio reporter in Prince Edward Island from April 2000 to March 2001.
[51] Ms. Roache began employment with APTN in March
2001 and immediately with NLS at that time, until October 31, 2001.
Ms. Roache, became aware of NLS when she was taking training at the APTN,
where Ms. Dianne Irwin and Mr. Obonsawin made a presentation
regarding the fact that a status Indian could receive their pay tax-exempt. She
admits being aware at the time that there was a risk to signing on with NLS, as
an employee, since the tax‑exempt status may not hold up — in any event,
she did sign on to be an employee with NLS. Under her employment contract with
NLS, she paid them a service fee. She simultaneously held a consulting contract
with APTN for the same pay, conducting the same services.
[52] In July 2001, when APTN was told by the Minister that
it could be liable for the income taxes of the employees of NLS, Ms. Roache
terminated her contract and received an employment offer from APTN, continuing
in the same position.
[53] Like Ms. Googoo, Ms. Roache would accumulate
overtime but was paid by APTN in time in lieu.
[54] Ms. Roache was also a video‑journalist doing
her own research, reporting and shooting. She was expected to do two stories
per week but she did not do any editing at the time. She worked out of the APTN
office in Halifax. No stories were handed to her;
she had to generate her own story ideas, do her own research, line up the
interviews, pursue with the filming, write up the stories and then ship the
report out to APTN in Winnipeg, Manitoba. The coverage was focused on the Aboriginal peoples. She
would pitch stories to her supervisor Bruce Spence and receive
instructions from him. Other news outlets were present, including CBC, CTV and
newspapers, but most of the stories were hers, concerning the Aboriginal
communities in the Indian Brook Reserve, Esconia Reserve and Big Cove Reserve
in Nova Scotia. She felt she was making a contribution to the life on the
reserves with APTN, reporting stories about Aboriginal people to Aboriginal
people.
[55] Ms. Roache was reassessed for the 2001 year, where the
Minister added $25,223 to her income gained from her NLS employment.
6. Facts Applicable to Elizabeth Grant -
2007-1710(IT)I:
[56] The taxation year at issue is 2001. Ms. Elizabeth
Grant is a status Indian, born in St. John, New Brunswick where she was raised for ten years until she moved
to Toronto, Ontario.
[57] From 1975 to 1980, Ms. Grant, was employed as
recreation director with the Native Council of Nova Scotia in Truro, Nova Scotia. For a brief period of time she was employed at a
Friendship Centre in Toronto,
Ontario, and then
worked at the Native Council of Canada in 1985 in an administrative position.
She took a leave from employment returning to the Native Council of Canada in
1994. In 1999, she moved to Nova Scotia
and received some business ownership training on the Millbrook Reserve in Truro.
[58] On January 8, 2001 Ms. Grant accepted a position
with the Native Women’s Association of Canada (“NWAC”) at its Ottawa offices as
Executive Assistant to the then President. The position ended with the
resignation of the President on January 31, 2001 but because NWAC advised
NLS that there was other employment for Ms. Grant, she continued to work with
the NWAC as a research assistant, helping on a variety of ongoing projects,
including research and statistics with respect to the Native women in Canada, until April 30, 2001.
[59] The NWAC was founded to enhance, promote and foster the
social, economic, cultural and political well-being of First Nations and Métis
women within First Nation Métis and Canadian societies. The objectives of NWC
included developing solutions for problems unique to Native women and promoting
their interests across Canada, as well
as studying, in conjunction with the Native organizations, problems confronting
Native women. This also included making representations to the government on
behalf of members of the provincial and territorial women’s organizations.
[60] While working with NWAC, Ms. Grant was under a
contract of employment dated January 8, 2001 with the NLS. When
Ms. Grant signed her contract of employment with NLS, she agreed to pay a
4% service fee to NLS and to have this deducted from her payroll.
Ms. Grant resided in Ottawa
throughout the relevant period of time and her employment functions were not
performed on a reserve.
[61] Ms. Grant, was familiar with the services offered
by NLS because she had been employed with them prior to her employment with
NWAC. As a status Indian, she was able to acquire health benefits through
Health Canada and as a result declined those
offered to her by NLS. She was happy to be employed by NLS because of the
benefits, particularly the possible tax exemption status, and being made aware
of employment opportunities as they became available.
[62] Once Ms. Grant’s employment with NWAC ended in
April 30, 2001, she moved to Nova Scotia and obtained employment with the Nova Scotia Native
Women’s Association on her own, without any assistance from NLS.
[63] The Minister assessed Ms. Grant with an additional
$13,039 in employment income from her employment with NLS in 2001.
7. Facts Applicable to Noel Knockwood – 2007-53(IT)I:
[64] The taxation years at issue are 2000 and 2001.
Mr. Noel Knockwood is a status Indian, member of the Shubenacadie
Band and was at all material times residing in Dartmouth, Nova Scotia, but not on a reserve.
[65] Mr. Knockwood, worked at MMNFS as a language and
cultural instructor performing his duties at the Child Development Centre and
Friendship Centre in Halifax, Nova Scotia. The MMNFS is a not for profit Friendship Center which
promotes social based programming for urban Aboriginal peoples while serving as
a focal point for them, in a variety of community functions and events, and
practicing an open door policy for all its programs and events. Its services
were available to all people regardless of their background or cultural
affiliation.
[66] One of MMNFS’ objectives was to benefit the Native
people in promoting education and cultural advancement for them, in and about
the Halifax and Dartmouth areas. The MMNFS operated in
downtown Halifax. It offered family support and
counsel services for alcohol and drug abuse, as well as child care and programs
such as a child development centre and health education and care of the elders,
but these were not exclusively for Aboriginal people. There were also youth
programs, youth training, adult training, employment support, computer training
and other recreational programs.
[67] The Child Development Centre where Mr. Knockwood
was employed offered a variety of sub-programs including the Aboriginal day
care program which provided children with opportunities to engage in play
activities promoting their physical, social, emotional linguistic and cultural
development with priority given to Aboriginal children but any remaining spaces
being offered to non‑Aboriginal children.
[68] The Community Action Plan for children was a mission to
provide “family” based programming for the local urban Aboriginal community and
the Aboriginal Head Start Program, which had for mission the preparation of
urban Aboriginal children for entry into the public school system in the Halifax Regional Municipality. Mr. Knockwood taught anyone interested
in the Aboriginal culture and language, both adults and children.
[69] Mr. Knockwood had an initial contract of
employment with NLS which commenced on June 15, 2000 and provided for statutory
source deductions but not for group life or health insurance. A second contract
of employment between Mr. Knockwood and NLS became effective on June 11,
2001, with basically the same terms as the original contract.
Mr. Knockwood agreed to pay NLS a service fee on the contract.
Correspondence was forwarded by MMNFS to NLS advising of Mr. Knockwood’s
leave of absence and pay increases between April 1, 2001 and June
2001 while under contract with NLS. Mr. Knockwood was under the
supervision of the children’s programs manager at MMNFS who in turn submitted
his attendance report to NLS.
[70] In 2000 and 2001, MMNFS employed some members directly
and others through NLS.
[71] The Minister reassessed Mr. Knockwood for the 2000
and 2001 years and added $11,912 and $10,994 to his employment income,
respectively.
8. Facts Applicable to Bridget A. Smith –
2007-4037(IT)I:
[72] The taxation years at issue are 1998, 1999, 2000 and
2001. Ms. Bridget Smith is a status Indian and a member of the
Eskasoni First Nation Reserve located in Eskasoni, Nova Scotia. At all material times, Ms. Smith
resided in Ottawa and not on a reserve.
[73] The Odawa Native Friendship Centre (“ONFC”) is a
non-profit corporation in the Aboriginal community in and about the
Ottawa-Carleton Region of Eastern Ontario, offering programs and services to
the general public regardless of Aboriginal descent. Its mission was to enhance
the quality of life of the Aboriginal peoples in the Capital region, maintain a
tradition of community, an ethic of self-help and development, and to provide
traditional teaching from its elders.
[74] NLS entered into a placement agreement with ONFC.
Ms. Smith’s first contract with NLS as a Family Support Worker with ONFC
commenced on August 4, 1998. Under that contract, only statutory source
deductions applied; she did not take any group life benefits. Ms. Smith paid
NLS service fees under the contract. The contract ended January 14, 1999
at which time Ms. Smith was immediately re-hired by ONFC.
[75] Ms. Smith’s second contract for employment with
NLS as a Family Support Worker commenced on April 15, 1999, and again
statutory source deductions applied; no group or health benefits were chosen by
Ms. Smith. Another NLS Leased Employee Information sheet was completed by
her on April 12, 1999, at which time she discharged ONFC from all claims
relating to her employment with them. The Executive Director of ONFC awarded
Ms. Smith retroactive pay increases on January 11, 2000 effective
April 1, 1999 which was then reflected in NLS’s retroactive pay
calculations. Ms. Smith’s pay was again increased, by the Executive
Director of the ONFC on October 24, 2000, resulting in a NLS retroactive
pay calculation. ONFC again increased Ms. Smith’s salary on April 1, 2002,
resulting in a NLS retroactive pay calculation. Ms. Smith resigned as
Family Support Program Coordinator of ONFC on October 31, 2002.
[76] While Ms. Smith was an employee of NLS she was
placed at the ONFC’s office in Ottawa where she
submitted ONFC timesheets and was supervised by its directors. ONFC also
conducted her performance appraisals and identified the training received and
training requirements. While an employee of NLS, she continued to be insured
and received group medical, dental and disability insurance under ONFC’s group
insurance.
[77] The Minister reassessed Ms. Smith additional
amounts of $14,330, $26,007, $37,560 and $36,358.00 in employment income
received from NLS respectively in 1998, 1999, 2000 and 2001.
Position of the Appellants:
[78] The Appellants each assert that their employment income
while in the employ of NLS was personal property situate on a reserve and
therefore exempt from taxation (given their status as Indians) pursuant to
paragraph 87(1)(b) of the Indian Act and paragraph 81(1)(a)
of the ITA. The Appellants in making this assertion argue that the
Minister misinterpreted or misapplied the connecting factors test.
Position of the Respondent:
[79] The Respondent asserts that each of the Appellants’
employment income for the year in question was not situate on a reserve and
therefore required to be included in the calculation of their income under the ITA.
Relevant Legislation:
[80] An exemption from payment of income tax is found in
paragraph 81(1)(a) of the ITA:
81.(1) – There shall not be included in the
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 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;
[81] Paragraph 87(1) of the Indian Act provides for a declaration of exemption as
follows:
87(1) –
Notwithstanding any other Act of the 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, namely:
[…]
(b) the
personal property of an Indian or a band situated on a reserve.
Connecting Factors Test:
[82] In R. v. Nowegijick, [1983] 1 S.C.R. 29, the
Supreme Court of Canada decided that property in section 87(1)(b)
of the Indian Act included income. Mr. Justice Dickson stated at
page 5 in part as follows:
One point might have given rise to argument. Was
the fact that the services were performed off the reserve relevant to situs?
The Crown conceded in argument, correctly in my view, that the situs of the
salary which Mr. Nowegijick received was sited on the reserve because it was
there that the residence or place of the debtor, the Gull Bay Development
Corporation, was to be found and it was there the wages were payable.
This decision resulted in what has become known as the
situs test.
[83] In Williams v. Canada, [1992] 1 S.C.R. 877, the
Supreme Court of Canada, established a series of connecting factors enabling
the determination of the situs of the personal property. At paragraphs 37
and 38, the Court stated as follows:
37 The approach which best
reflects these concerns is one which analyzes the matter in terms of categories
of property and types of taxation. For instance, connecting factors may have
different relevance with regard to unemployment insurance benefits than in
respect of employment income, or pension benefits. 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.
38 This approach preserves the
flexibility of the case by case approach, but within a framework which properly
identifies the weight which is to be placed on various connecting factors. Of
course, the weight to be given various connecting factors cannot be determined
precisely. However, this approach has the advantage that it preserves the
ability to deal appropriately with future cases which present considerations
not previously apparent.
At paragraph 61, the Court continued:
61 Determining the situs of
intangible personal property requires a court to evaluate various connecting
factors which tie the property to one location or another. In the context of
the exemption from taxation in the Indian Act, there are three important
considerations: the purpose of the exemption; the character of the property in
question; and the incidence of taxation upon that property. Given the purpose
of the exemption, the ultimate question is to what extent each factor is
relevant in determining whether to tax the particular kind of property in a
particular manner would erode the entitlement of an Indian qua Indian to
personal property on the reserve.
[84] In Mitchell v. Peguis Indian Band, [1990] 2
S.C.R. 85, the S.C.C. held that since the Royal Proclamation of 1763, the Crown
has always acknowledged that it is honor bound to shield Indians from any
efforts by non‑Natives to dispossess Indians of the property which they
hold qua Indians, i.e. their land base and chattels on that land base.
[85] The Court stated at paragraph 88:
88 It is also important to underscore the
corollary to the conclusion I have just drawn. 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.
The purpose of section 87 is not to remedy the
economically disadvantaged position of Indians. In dealing with the issue of “on
a reserve”, the Supreme Court of Canada in Mitchell quoted Justice A.
Macfarlane in Leonard v. R. in Right of British Columbia, [1984] 4
C.N.L.R. 21, where Justice Macfarlane stated:
It is a reasonable interpretation of the section to say that
a tax exemption on the personal property of an Indian will be confined to the
place where the holder of such property is expected to have it, namely on the
lands which an Indian occupies as an Indian, the reserve. Indians who surrender
their lands to non-Indians on lease give up the right to occupation, and when
they own or possess personal property on those surrendered lands I think that
they are in no different position than any other citizen.
[86] In the Mitchell case, the Supreme Court of
Canada continued at paragraph 91 to state in part as follows:
. . . I have no doubt that it will normally be appropriate
to take a fair and liberal approach to the problem whether the paramount
location of tangible property or a chose-in-action is situated on the reserve;.
. . But I would reiterate that in the absence of a discernible nexus between
the property concerned and the occupancy of reserve lands by the owner of that
property, the protections and privileges of ss. 87 and 89 have no
application.
The Court also noted that:
These provisions are not intended to confer
privileges on Indians in respect of any property they may acquire and possess,
wherever situated. Rather, their purpose if simply 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.
[87] The connecting factors test as initially established by
the Supreme Court of Canada in Williams has been analyzed and applied
many times by the Federal Court of Appeal including the following cases: Canada
v. Folster, [1997] 3 F.C. 269; Southwind v. Canada, [1998] 2
C.N.L.R. 233; Amos v. Canada, [2000] 3 C.N.L.R. 1; Bell v. Canada,
[2000] 3 C.N.L.R. 32; Desnomie v. Canada, [2000] F.C.J. No. 528; Monias v. R., [2001] 3 C.T.C. 244, 2001
D.T.C. 5450; Shilling v. M.N.R., [2001] F.C.J. No. 951; Akiwenzie v.
Canada, [2003] T.C.J. No. 101 (QL); Horn
v. Canada, 2008 FCA 352; [2008] F.C.J. No.
1553 (QL).
[88] Of
these, Shilling is particularly relevant to the connecting factors tying
employment income to a reserve, and is relied upon by counsel in this
appeal.
[89] In Shilling, the Appellant had lived off the
reserve, was employed by NLS and had been placed with a social services
organization providing services to off‑reserve Natives in Toronto, Ontario. It was held that the
only factor that connected her employment to a reserve was the location of her
employer, NLS, on the Six Nations Reserve and that there was insufficient evidence
as to the operations of NLS to allow the Court to conclude that this factor
connected her employment income to a reserve in any significant way. The
evidence was principally lacking as to: where NLS’ business was conducted in
the years in question; the real nature of the employment relationship between
the Appellant and NLS; and the benefits, if any, from Ms. Shilling’s employment
which may have accrued to the reserve. The Court went on to find that the
nature of the work performed by Ms. Shilling did not connect to a reserve
and the fact that the nature of the employment was to provide services to
Indians was insufficient to connect that employment to an Indian reserve. Given
the purpose of paragraph 87(1)(b) of the Indian Act,
provision of social services to off‑reserve Native peoples is
insufficient justification for tax exemption under that particular provision.
Ms. Shilling’s off-reserve residence, in this case, was a less significant
factor.
[90] In Shilling, the Court stated:
31 Thus, in Folster v.
Canada, [1997] 3 F.C. 269 (C.A.) and Bell v. Canada, [2000] 3
C.N.L.R. 32 (F.C.A.), the following factors were said to be potentially
relevant in determining whether an Indian's employment income is situated on a
reserve: the location or residence of the employer; 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 it; and the residence of
the employee.
32 The place where the
employee was paid has also been considered a potentially relevant connecting
factor, although not one that has been given much weight: Bell v. The Queen, 98 D.T.C. 1857 (T.C.C.), at
paragraphs 45‑47. The Tax Court Judge's decision was upheld on appeal and
his identification of the connecting factors approved: [2000] 3
C.N.L.R. 32, at paragraph 35 (F.C.A.).
33 The weight to be
assigned to any of these factors may vary according to the facts of any given
case, even when the category of property in question (employment income) and
the nature of the tax (income tax) are the same. Nonetheless, the case law
suggests that particular attention should be given to the nature of the work
performed by the employee, and the circumstances surrounding it. As Linden J.A.
explained in Folster, supra, at para 27:
In my view, having
regard for the legislative purpose of the tax exemption and the type of
personal property in question, the analysis must focus on the nature of the Appellant's
employment and the circumstances surrounding it. The type of personal property
at issue, employment income, is such that its character cannot be appreciated
without reference to the circumstances in which it was earned. Just as the
situs of unemployment insurance benefits must be determined with reference to
its qualifying employment, an inquiry into the location of employment income is
equally dependent upon an examination of all the circumstances giving rise to
that employment.
. . . . .
42 We would also note that
the head office of NLS was located on the Six Nations reserve. There is no
evidence that NLS had any connection to the Rama Band of which Ms. Shilling was
a member. We acknowledge that paragraph 87(1)(b) refers to personal
property of an Indian that is situated on "a reserve" and not
"the reserve" of the Indian in question. The Trial Judge inferred
(paragraph 73) from this that an Indian's property situated on any reserve is
eligible for the tax exemption conferred under paragraph 87(1)(b). However, we
are not convinced that this meaning is compelled by the language of paragraph
87(1)(b), although we recognise that the personal property of an Indian may
attract the benefits of section 87, even when, like Ms. Shilling, its owner
does not reside on a reserve.
43 In Desnomie v. The
Queen (2000), 186 D.L.R. (4th) 718, at paragraph 21 (F.C.A.), it was
doubted whether section 87 applies to personal property located on a reserve
other than the taxpayer's own reserve. These doubts are reinforced by a passage
in Leonard v. R. in Right of British Columbia (1984), 52 B.C.LR. 389, at
395 (C.A.), where Macfarlane J.A. seems to
have taken the more restrictive view of the scope of section 87:
It is a reasonable interpretation of the
section to say that a tax exemption on the personal property of an Indian will
be confined to the place where the holder of such property is expected to have
it, namely on the lands which an Indian occupies as an Indian, the reserve.
(Emphasis
added to the word "the")
This passage is quoted with approval by La Forest J. in Mitchell,
supra, at page 132.
44 While this is an
important issue, in light of the factual gaps in the record in the case before
us that prevent the location of the employer from being considered a
significant factor, it is not necessary to decide how the words "a
reserve" should be interpreted.
45 One other issue
respecting the location of the employer requires comment. That tax planning was
the motivation for the respondent to enter into an employment relationship with
NLS is not a concern in the absence of an allegation that either the
transaction is a sham, or that the general anti-avoidance rule in section 245
of the Income Tax Act is applicable. The Crown has made no such
allegation in this case. As the Trial Judge found, there should be no
discounting of the weight to be accorded the on-reserve location of the
employer because the employment by that employer was motivated by tax planning
and a desire to avoid the payment of income tax. See Neuman v. Minister of
National Revenue, [1998] 1 S.C.R. 770, at paragraph 39. On the other hand,
in the absence of evidence which would support giving additional weight to this
connecting factor, contracting with an on-reserve employer, whether motivated
by tax planning or not, will be given only limited weight.
. . . . .
51 AHT appears to be a social
services organization involved in preventative health care and other social
assistance for off-reserve Native people in Toronto. The respondent's work benefits AHT and its off-reserve clientele. This
is in stark contrast to Folster where the hospital's patients mostly
lived on-reserve. As the Trial Judge found, 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.
52 In finding that the nature of the
respondent's duties are not a connecting factor to a reserve, we do not
overlook the fact that the services provided are social services to Native
people as opposed to employment in a for-profit enterprise. However, many
not-for-profit social service organizations exist in Canadian cities. Employees
of such organizations are not exempt from income tax. Given the limited purpose
of paragraph 87(1)(b) of the Indian Act, 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.
[91] From the foregoing cases, the following conclusions can
be drawn:
(1) Paragraph 87(1)(b)’s purpose is to protect
from erosion by taxation the property, such as employment income, of individual
Indians which they acquire, hold and use on the reserve. Its purpose is to
achieve the preservation of property held by qua Indians on reserves so
that their traditional way of life would not be jeopardized. It is the situs of
its acquisition that is particularly important: (Monias v.R., supra).
(2) As stated in Mitchell v. Pequis, “the
purpose of the legislation is not to remedy the economically disadvantaged
position of Indians by ensuring that the Indians may acquire, hold and deal
with property in the commercial mainstream on different terms than their fellow
citizens. […] Indians who acquire and deal in property outside lands reserved
for their use, deal with it on the same basis as all other Canadians.”
(3) Sections 87 and 89 “are not intended to confer
privileges on Indians in respect of any property they may acquire and possess,
wherever situated. Rather, they are 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”. (Mitchell v.Pequis Indian Band, supra)
(4) The taxation of a status
Indian’s income would not result in the erosion of his entitlement “qua
Indian” on any or all reserves if there is insufficient connection between the
income and a reserve (Akiwenzie v. Canada, supra).
(5) As Justice Archambault stated in Desnomie,
“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.”
(6) In order for an Indian’s
employment income to come within the exemption of section 87, there must
be a link between its acquisition and a reserve as the physical location or
economic base. “Section 87 offers “…no protection in the absence of a
discernable nexus between the property concerned and the accuracy of reserved
land by the owner of that property,…”.” (Akiwenzie v. Canada, supra).
(7) Even though the nature of
an Indian’s work is in the assistance of reserve Indians when they move off the
reserve, and even though the employer is a Native organization, these
considerations do not necessarily connect the Appellant’s employment income to
any particular reserve. (Desnomie v. Canada, supra)
(8) In the absence of evidence of
the scope of an employer’s activities on the reserve, and of a connection
between the employee’s ensuing income and a reserve, little weight can be
afforded to the fact that an Indian employee is working for an Indian employer,
helping Indians, all of which are clearly located off the reserve. (Desnomie
v. Canada, supra).
(9) “In the absence of a discernable nexus between the
property concerned and the occupancy of reserved land by the owner of the
property, the protection and privileges of sections 87 and 89 have no
application”. (Mitchell v. Peguis Indian Band, para. 91).
(10) The first step is to identify the various
connecting factors which are potentially relevant and which should be analyzed
to determine what weight they should be given in identifying the location of
the property, in light of the three considerations outlined in Williams v.
Canada:
(1) the purpose of
the exemption under the Indian Act;
(2) the type of
property in question;
(3) the nature of the
taxation of that property.
“The question […] is what weight should be given [each] 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.”: (Williams
v. R.)
(11) The
following factors, some of which are reiterated in Shilling at para. 31,
“are potentially relevant in determining whether an Indian’s employment income
is situated on a reserve”:
(1) the location or residence of the employer;
(2) the residence of the employee;
(3) the place where an employee was paid;
(4) the connection, if any,
between the employer and the reserve of the employee.
(5) the nature, location and
surrounding circumstances of the work performed by the employee; and
(6) the nature of any benefit
from the employment income that accrued to the reserve.
(12) “There should be no discounting of the weight to be
accorded the on-reserve location of the employer because the employment by that
employer was motivated by tax planning and a desire to avoid the payment of
income tax. […] On the other hand, the absence of evidence which would support giving
additional weight to this connecting factor, contracting with an on-reserve
employer whether motivated by tax planning or not, will be given only limited
weight.” (Shilling v. Canada, supra).
(13) The mere fact that the nature of the employment is to
provide services to Indians does not suffice to connect that employment to an
Indian reserve; (Shilling v. Canada, supra).
(14) The limited purpose of paragraph 87(1)(b)
of the Indian Act is not such that employment involving the provisions
of social services to off-reserve Native peoples will confer preferred tax
treatment under that provision; (Shilling v. Canada).
[92] I am of the view that the following connecting factors
are applicable to this appeal in determining the situs of the property – the question
remaining is what weight is to be attached to each of these:
(1) The location
of the employer, the scope of the employer’s activities on the reserve and the
nature of any benefit accruing to a reserve from the location of the employer;
(2) The residence of the
employee;
(3) The place or
location of the payment of income in terms of whether or not there is a link
between the acquisition of income and the reserve as a physical location or
economic base;
(4) The location
of the employment. That is, any benefit accruing to the reserve as a result of
the appellant’s employment by NLS;
(5) The effect
and change of the legal relationship to any particular reserve, by an employer;
(6) The nature
of the work performed and the circumstances surrounding the employment in terms
of provision of services to Indians with or without a connection between that
employment and a reserve as a physical place.
Analysis
[93] The Appellants argue that you must look for other ways
to connect to a reserve other than simply using the connecting factors; it is
the application of the test that must be modified. The Appellants basically
submit the following:
(1) The
connecting factors’ test has been an increasingly restrictive set of
constraints which has progressively limited the extent of the section 87
exemption for employment income;
(2) As the
connecting factor test has evolved, the test has come increasingly to reinforce
assimilationist models of Aboriginal culture and identity, and to bear the
hallmarks of discarded and discredited stereotypes of Aboriginal peoples; and
(3) The
connecting factors test has been interpreted in such a fashion as to
effectively deprive status Indians of the ability to choose to order their
affairs so as to fall within section 87.
[94] The Appellants also assert that in this day and age, it
is difficult for a status Indian to obtain a tax exemption when he or she lives
and works off a reserve and that in essence, the reality today for a status
Indian is that residing and working on a reserve is not a viable option. The
Appellants suggest that the connecting factors really tie Aboriginals to a
residence on a reserve and have made them dependent for employment on a
reserve. The Appellants suggest that tax exemptions must be those which a Native
can choose and so the most weight must be given to those factors that the
Appellants control. The test really then should focus on the choice of the
employee. The Appellants further suggest that so long as there exists a
significant devotion by the employees to Aboriginal or Native causes, the
location of the residence of the status Indian should not be of significance.
These arguments and submissions are novel and deserve consideration but this
consideration must rest with Parliamentarians who enacted section 87 and who
are in a position to consider amendments to it.
[95] Paragraph 87 of the Indian Act may not
necessarily have evolved as expansively or as quickly as the Appellants desire
but the Federal Court of Appeal and the Supreme Court of Canada jurisprudence
simply does not support this type of analysis and approach to the tax exemption
status of the Appellants under section 87. The Courts have developed and
repeatedly applied a list of connecting factors which are considered important
and applicable on a case by case basis. Each case is different in its facts and
the Court must determine what weight to attach to each factor in applying them
to the particular situation before it. I therefore reject the arguments of the
Appellants on this particular point for the simple reason that the courts have
developed a consistent analysis of the applicable connecting factors; that
analysis does not support the Appellants’ submissions. A broad and liberal
interpretation has been given to section 87 over the years but it cannot
be stretched so as to take its application outside the boundaries set out by
the legislation as interpreted and applied by the Federal Court of Appeal and
the Supreme Court of Canada. To give effect to the Appellants’ arguments would
in my view, amount to an amendment of the intended purpose of section 87; this
is not within the purview of this Court – this is for the Parliamentarians.
Location of employer; Scope of employer’s activities on a
reserve and Benefits accruing to a reserve
[96] NLS is located on the Six Nations Reserve.
Mr. Obonsawin was quite frank in his evidence in stating that NLS was
initially located on the Six Nations Reserve because it could potentially offer
NLS and status Indians an advantage in maintaining tax exemptions. In the
present cases before the Court, there are specific contracts of employment
between NLS and the individual Appellants, all of which create genuine legal
rights and obligations each upon the other. In Shilling, supra, the
Federal Court of Appeal in essence held that the taxpayer was permitted to
enter legal relationships for tax planning purposes in the absence of an
argument that it was a sham or a violation of the general anti-avoidance rules.
There are no such allegations in these appeals.
[97] I agree with the comments of Justice Paris in Roe
et al. v. The Queen, [2008] T.C.J. 509, where he analyzed the meaning of
the phrase “property… situated on a reserve”. I think he quite rightly interpreted
Chief Justice MacLachlin’s comments in McDiarmid Lumber Ltd. v. God’s
Lake First Nation, 2006 SCC 58, in holding that it is reasonable to assume that
the use of the phrase “property…situated on a reserve” in paragraph 87(1)(b)
of the Indian Act should be granted the same interpretation as in
section 89(1) of the Indian Act, given that the two provisions basically
share the same purpose.
[98] In Canada v.
Monias, supra, it
was noted that although the location of the employer has been regarded as a
connecting factor under the analysis mandated by Williams, there must
nonetheless be some evidence of the scope of the employer’s activities on the
reserve or of some benefit flowing to the reserve from the presence of the
employer. Otherwise it cannot be a factor upon which much weight will be
assigned.
[99] I must look at the evidence presented by each of the
Appellants and determine what, if any, benefits have flowed to the Six Nations
Reserve from NLS’s operations. There was really no evidence as to what outlays,
if any, were made by NLS on the reserve. There were no figures, except for NLS
financial statements, as to what monies were generated on a reserve and based
on the financial statements presented, in 1997, 94% of the NLS revenues went
back to the employee subcontractors. There were no particulars provided of the
residency of the staff of NLS, that is, where they lived, or the number of
staff, or their level of individual income. The location of the office of NLS
on the Six Nations Reserve is really the only direct benefit to the reserve,
especially given the fact that NLS’s only source of revenue is from status
Indian employees, all across the country. In this particular case only one
Appellant, Ms. Masching, was a member of the Six Nations Reserve although she
has never lived on any reserve. It leads me to the conclusion that very little
weight should be attached to this particular factor.
[100] The location of NLS on the Six Nations Reserve provides
some connection of the employment income of the Appellants to that particular
reserve but the weight to be attached to that fact is extremely limited given
the nature of the operations of NLS. It would appear that the significant
majority of the services of NLS subcontractor employees were performed off the
reserve by its employees. The fact that NLS is basically operating an
enterprise in the commercial mainstream, and the lack of evidence with regard
to the benefits flowing to any reserve make it difficult if not impossible to
discern a nexus between the employer and benefits to a reserve through
employment income.
Location of Employment
[101] In terms of benefits accruing to a reserve from the
location of the employer or the employment of a status Indian, I feel that
there were few benefits accruing to a reserve from the employment of the
Appellants other than if they chose to spend any of their income on a reserve.
[102] The Appellants generally lived off reserve; none worked
exclusively on a reserve but all were devoted to improving Aboriginal peoples’
way of life in one way or another. NLS has its offices located on the Six
Nations Reserve but as indicated there was little evidence of a related benefit
to the reserve. No doubt there may have been some benefits accruing to Aboriginal
persons, both on and off-reserve, in various locations in Canada but it is difficult to say that
there is a connection between the employment of the Appellants and a reserve as
a physical place. The evidence is simply not present to show the benefits, if
any, accruing to a reserve from the employment relationship. In the absence of
specific evidence with respect to this connection, it cannot be said that
benefits accrued from the employment to a reserve or a number of reserves as a
physical place.
[103] Services provided by an employee entitles the employee to
employment income. As a result the location of the employment is an important
connection to either an on-reserve or off-reserve location. In terms of
Ms. Maguire, her employment was both on and off-reserve, throughout Canada, and for the year at issue, 2005,
she was employed with CAAN in HIV/AIDS related research. CAAN’s mandate is
stated as "provid[ing] leadership, support, and advocacy for Aboriginal
People Living with and affected by HIV/AIDS, regardlesss of where they
reside".
Income earned from work performed on a reserve, for the
benefit of the reserve, can be exempted from taxation so long as the
individual has not entered the commercial mainstream and is not providing a
service otherwise provided on the reserve by any number of non-Aboriginal
individuals. An Indian’s residency off reserve is not fatal to his or her claim
of exemption if the employment income can be connected to the reserve as a
physical place.
[104] From March to October 2000, Ms. Googoo worked out of
her parent’s home in Indian Brook First Nation Reserve and post-October 2000,
worked out of the APTN Bureau in Halifax, Nova Scotia. The work she would
do in the temporary APTN Bureau office in her parent’s home in Indian Brook
First Nation Reserve, would relate to editing the script when and if required
and shipping the script to Winnipeg for
additional editing and some other paperwork that she may conduct in the course
of her duties. All of her other work was either at the APTN Bureau in Halifax
or in the field where she would shoot videos, conduct and record interviews,
and that sort of activity, either on or off-reserve and most certainly, in
locations where other mainstream media would be present. It is unclear from the
evidence as to what portion of her employment duties were performed on a reserve.
Insufficient evidence was led at the hearing which would enable the Court to
assign a numerical value, in the form of a percentage, to the duties performed
by Ms. Googoo on a reserve, for the benefit of the reserve, for the time period
in question. Nothing in either s. 87 of the Indian Act or s. 81 of the ITA
requires that all, or substantially all of the employment income derived in a
certain taxation period stem from on-reserve employment. As such, the facts in
any given appeal may permit an allocation of a percentage of the employment
income to exemption. Such is not the case in Ms. Googoo’s appeal as I do not
possess sufficient evidence to proceed with that calculation.
[105] Ms Roache, was basically in the same circumstances
as Ms. Googoo and her employment activities were basically the same except
she never worked on a reserve and if she did there was no evidence of such or
any evidence as to what portion of her employment duties were performed on a
reserve. Ms. Masching worked from her home in Lawrencetown, Nova Scotia; Mr. Knockwood
worked at the MMNFS Friendship Centre in Halifax, Nova Scotia; Ms. Smith worked as a Family Support Worker for
NLS in Ottawa, Ontario; and Ms. Grant
worked as an Executive Assistant for the President of NWAC in Ottawa. None of these Appellants worked
on a reserve during any significant time period.
[106] In essence, none of the Appellants regularly spent any
working time on reserves. If there was any work to be done on the reserve, save
and except for Ms. Googoo from January 2000 to October 2000, such working
time on the reserves would be intermittent at best.
[107] Based upon the evidence of location of employment
presented, it could only lead one to believe that the location of the
Appellants’ work, and therefore their employment income, was off-reserve.
Residence of the Employee
[108] The residence of an employee could be potentially
relevant if it connects in some way the employees’ employment income to a
reserve.
[109] The only Appellant to reside on a reserve during relevant
times, is Ms. Googoo. She resided on Indian Brook First Nation Reserve
throughout as she thought it was a good to cultivate source in the community.
Given she worked as a journalist on Native issues for APTN, her residence
location on a reserve could be a good connector of her employment income to a
reserve. She also wanted to live on the reserve to be near her parents. The
other Appellants did not reside on a reserve during the relevant time periods
and therefore from a residence location point of view, their employment income
has no apparent or immediate connection to a reserve.
Location of Payment of Income
[110] Location of payment of income in terms of whether or not
there is a link between the acquisition and the income on the reserve as a
physical location or an economic base can be a factor on the situs of income
but not one of significance in these appeals.
[111] Although there was considerable evidence led with respect
to the payroll services of NLS, how placement organizations were invoiced, how
they paid their employees, the development of timesheets of individual
employees and the flow of the information to and from placement organizations
to NLS, none is helpful in connecting that location of payment to a reserve.
Rapid Trans was used to deposit invoice payments from placement organizations
at a nearby CIBC to NLS, but initially the payroll services provided by NLS to
its employees had been contracted out to CIBC, then to Comcheque and then to
Certidian. Some of the Appellants, in their viva voce evidence, spoke in
terms of direct deposit and receiving cheque stubs in the mail along with other
information relating to employment opportunities. Obviously the Appellants were
paid by direct deposit but there was no information with respect to where their
individual accounts were located. The only evidence on this point is that
direct deposits were made to bank accounts wherever they were located, and
these deposits came from an account of NLS where it was located. This is not evidence
that connects the employee income to a reserve. This point is thus of no value
in connecting the income of the Appellants to a reserve and in any event little
weight is to be attached to this factor.
Nature and Circumstances of Work Performed:
[112] Again, the purpose of section 87 of the Indian Act is
to insulate the property interest of Indians in their reserve lands and to
prevent intrusion and interference so as to ensure that Indians are not
dispossessed of their entitlements.
[113] Of all the factors to be considered in the connecting
factors test, I believe the nature and circumstances of the work performed is a
factor to which significant weight ought to be attached because this factor
goes to the heart of the purpose of the exemption under section 87.
[114]In all of these appeals, NLS was leasing the services of
Native people to placement organizations where the Native people were
originally employed, and receiving a service fee of 4% to 5% of the payroll of
the employee in question. NLS had no nexus to any reserve of any of the
Appellants save and except Ms. Masching – and then the only connection was that
Ms. Masching was a member, but not a resident, of the Six Nations Reserve where
NLS Office was located. Mr. Obonsawin, sole proprietor of NLS, was not a
member of the Six Nations Reserve, and did not and could not live under the Six
Nations Reserve.
[115] Notwithstanding Mr. Obansawin’s assertion that NLS wanted
to strengthen NFC’s programs, given the NLS’ lack of involvement in training
and educating NLS’ employees and the lack of real benefits to them, it is
difficult to comprehend how the NLS services could do so.
[116] The relationship between NLS and the Appellants was
contractual in nature but contractual at its most basic level. The employees in
question accumulated their overtime with the placement organization; they took
instructions and received directions from the placement organization;
evaluations were conducted by the placement organization; and recommendations
for pay increases came from the placement organizations. The employees
performed the same duties with the placement organizations as they did before
they entered into a relationship with NLS. Notwithstanding the contractual
employer/employee relationship between NLS and the Appellants, the employer
from a functional point of view was really the original placement organization.
NLS did not even maintain a personnel file system for the Appellants in
question and none took any of the employee benefits package from NLS because
they had their own health care coverage through Health Canada. NLS did not maintain a résumé of
the Appellants in their files. The training offered to the Appellants was so
limited it was almost nil and if there was training, the expense was mostly carried
by the placement organizations. It certainly appeared that the only advantage
that the Appellants were receiving from their employment relationship with NLS
was the tax-exempt status and even then, in most circumstances, the Appellants
knew this was in jeopardy when they originally signed on as an employee with
NLS.
CONCLUSION
[117] The factors connecting the employment of the Appellants
to a reserve are very limited. I have discussed each factor, some more
specifically as they relate to each Appellant, and others more generally. In
the end, I do not find the evidence sufficient to conclude that the taxation of
each or any of the Appellants’ employment income from NLS in the relevant
taxation years would result in the erosion of their entitlement to property
they hold as Indians on a reserve. As such I find that the Appellants’
employment income from NLS is not exempt from income tax. The appeals are
dismissed, without costs.
[118] I would also add that
upon review of all the evidence presented to this Court in the course of these
appeals, I am left with a sense that the Appellants, although some were aware
of the risks they were undertaking by signing on as employees with NLS, were
not really of cognizance of the full implications and to some extent, in my
mind, were taken advantage of by the NLS officials. NLS appears to me to be
nothing more and nothing less than an organization providing basic payroll
services, and although on a contractual basis, certainly more to the benefit of
NLS officials than the individual Appellants. NLS was promoting benefits well
beyond the tax relief available under section 87 of the Indian Act. The
Appellants should have been cautioned in a more significant way as to what
arrangement they were entering into. Indeed, the placement organizations that
originally employed them should have been more active and aggressive in
analyzing the exposure of their employees in a particular arrangement presented
to them by NLS.
Signed at Ottawa, Canada, this 2nd day of February, 2009.
“E.P. Rossiter”____
Rossiter, A.C.J.
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