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Citation: 2007TCC757
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Date: 20071218
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Docket: 98-1003(IT)I
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BETWEEN:
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MARGARET MCKAY,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A. FACTS
[1] The
Appellant is an Indian as defined by the Indian Act and is a member of
Salt River First Nation #195 of Fort Smith, Northwest
Territories.
[2] In
1995, the Appellant was employed by the Salt River First Nation #195 in the
Town of Fort Smith. In 1995, the Appellant was also
employed by the Government of the Northwest Territories.
[3] The
Appellant received income from office or employment in the amount of $15,912.21
from the Salt River First Nation #195 and income of $1,715.56 from the
Government of the Northwest Territories (hereinafter the “Employers”).
[4] During
the 1995 taxation year, the Appellant resided in the Town of Fort Smith,
Northwest Territories.
[5] The
Appellant performed her duties of office or employment with both of the
Employers in the Town of Fort
Smith.
[6] When
the Appellant filed her income tax return for the 1995 taxation year she adopted
the position that the employment income received by her was exempt from
taxation by virtue of section 87 of the Indian Act.
[7] By
Assessment dated August 13, 1996, the Minister of National Revenue (the
“Minister”) assessed the Appellant to include the amounts of $15,912.21 plus
$1,715.56 in her income for the 1995 taxation year.
B. ISSUE
[8] Is
the Appellant exempt from tax by virtue of section 87 of the Indian Act
on the employment income that she received in the 1995 taxation year?
C. ANALYSIS AND DECISION
[9] When
the Minister assessed the Appellant he determined that the situs of both of the Employers was located in the Town of Fort Smith.
[10] The Minister also determined that no portion of the Town of Fort Smith was located on a reserve.
[11] In determining whether an Indian is entitled to an exemption from taxation,
we must review the “connecting factors”. One of the main connecting
factors is the situs of the Employers.
[12] As noted above the Minister took the position that the Appellant’s Employers
were not located on a reserve.
[13] Counsel for the Respondent called Mr. Brian Kenneth Herbert as a
witness.
[14] Mr. Herbert was employed by the land services
section of the Indian & Inuit Services Directorate of the Northwest
Territory Region. Through his twenty-five years of employment with the land
services section Mr. Herbert had access to documentation and personal
historical knowledge of the lands occupied by the Salt River First Nation #195
band office (“Band Office”).
[15] Mr. Herbert testified that in 1995 the land on
which the Band Office was situated was incorrectly treated by his Directorate as
a temporary fishing reserve until the year 2000, at which time it was realized
that the land should have been treated as a reserve as identified under the Indian
Act. Mr. Herbert specifically stated the following:
Q: Now, I note on this it says under
the bold Salt Plains Indian Reserve #195 it says “Salt River Indian Fishing Reserve”.
A: Yes, it does.
Q: Can you tell me about that?
A: This has probably led to the
greatest amount of confusion about this reserve itself. For the longest
time the department thought it was a fishing reserve, which is a notated parcel
of land held for the use for a specific purpose. In this case it would have
been held as a seasonal fishing area for the First Nations people to go to at
the various fishing times.
So it was never treated as an
Indian Act reserve until probably closer to 2000 when we did some more
research on it and we found out that according to the surveyor general and the
way the Order in Council was written, it was deemed by everybody else to be a
reserve as under the Indian Act.
[Emphasis added]
[16] The Supreme Court of Canada in the Ross
River Dena Council Band
decision determined what legal
requirements had to be met for the establishment of a reserve as defined under
the Indian Act. The decision explicitly stated
that there must be an intention to create a reserve by a person given the
authority to bind the Crown. LeBel J. stated the following:
Under the Indian Act, the setting apart of
a tract of land as a reserve implies both an action and an intention. In other
words, the Crown must do certain things to set apart the land, but it must also
have an intention in doing those acts to accomplish the end of creating a
reserve. It may be that, in some cases, certain political or legal acts
performed by the Crown are so definitive or conclusive that it is unnecessary
to prove a subjective intent on the part of the Crown to effect a setting apart
to create a reserve. For example, the signing of a treaty or the issuing of an
Order-in-Council are of such an authoritative nature that the mental
requirement or intention would be implicit or presumptive.
[17] In Mr. Herbert’s testimony he stated that
there was an Order-in-Council which declared the land on which the Band Office
resided was a reserve as required under the Indian Act, thus the legal
documentation evidencing the intention of the Crown was in place, it was simply
misinterpreted. (Emphasis added)
[18] Although as of the year 2000 negotiations have
been held to include the Salt River First Nation #195 under a new treaty
entitlement,
based on the information presented at trial and the criteria established by Ross
River Dena Council Band,
I have concluded that the land on which the Band Office is located and the
place in which the Appellant performed her services were situated on a reserve,
during the 1995 taxation year.
Situs of Employment Income
[19] In the Shilling v. Canada decision
the Federal Court of Appeal set out the analytical framework evolving from the
jurisprudence in determining whether an Aboriginal’s employment income is
situated on a reserve. The framework is as follows:
1. The statutory exemption in section 87
extends to the taxation of an Indian’s employment income if it is located on a
reserve.
2. Whether intangible property is located on a
reserve is dependent on an examination of factors connecting the property to a
reserve. There are three important considerations when determining the weight
of connecting factors: the purpose of the exemption; the character
of the property in question; and the incidence of taxation upon that property.
3. Section 87 should be understood as part of
the provisions contained in section 87-90 of the Indian Act which were
designed to protect Indians in various ways from the erosion of their economic
bases, namely reserve lands and personal property there belonging to an Indian.
4. Section 87-90 do not serve the purpose of
generally ameliorating the economic disadvantages suffered by many Indians,
thus no application will be permitted where an Indian chooses to acquire and
hold personal property “in the commercial mainstream” as oppose to on a
reserve.
[20] As section 87 of the Indian Act extends
to employment income, an examination of the connecting factors will be
analysed below.
[21] The Williams v Canada decision established what is referred
to as the “connecting factors test”. This test has been used by many
courts in assessing whether employment income can be said to be situated on a reserve.
[22] The Williams case
dealt with the situs of unemployment insurance benefits received by Mr.
Williams, a member of the Penticton Indian Band residing on Reserve No. 1. The
Court established that connecting factors may have varying degrees of
relevancy, depending on the type of benefit or income being received.
[23] In the Folster decision
the Federal Court of Appeal established how the analysis should proceed in
determining whether employment income was situated on a reserve and which
connecting factors should be considered and given significant weight in this
analysis. Linden J. stated the following:
The inquiry must, therefore, be expanded in order to
consider other connecting factors. 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
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. Assessing these factors in the context of this case, I am of
the view that the tax exemption must be accorded to the appellant’s income in
order to avoid the erosion of an Indian entitlement. The personal property at
issue is income earned by an Indian who is resident on a Reserve, and who works
for a Hospital which attends to the needs of the Reserve community; a Hospital
that was once located on, and is now adjacent to, the Reserve it services.
***
On the facts of this
case, the residence of the taxpayer, the nature of the service performed, the
history of the institution in question, and the circumstances surrounding the
employment all received great weight in the purposive interpretation of section
87. On the contrary, the residence of the employer, even if that could be
determined, and the metes and bounds location where the duties performed,
although certainly relevant, were granted less weight than other cases. [Emphasis added]
[24] In the Federal Court of Appeal decision of Amos, Justice
Strayer permitted the tax exemption of employment income derived from a pulp
mill situated off‑reserve. The Court inferred that since the reserve
lands were leased to the pulp mill company on the condition that members of the
Band be employed, the members of the Band benefited from the employment
opportunities made available through the aforementioned arrangement. It was
also inferred that the use of the reserve land was an integral component of the
operation of the pulp mill or the company would not have leased the lands prior
to production. Based on this analysis the Court held that employment was
directly related to the Band members’ entitlement to the reserve land.
[25] In Amos the
Court referred to the Recalma
decision which dealt with the tax exemption of investment income. This case
effectively summarizes what requirement must be met to permit the tax exemption
of employment income earned off-reserve. Linden J. stated the following at
paragraphs 9 and 10:
In evaluating the various factors the Court must
decide where it ‘makes the most sense’ to locate the personal property in issue
in order to avoid the ‘erosion of property held by Indians qua Indians’ so as
to protect the traditional Native way of life. It is also important in
assessing the different factors to consider whether the activity generating the
income was ‘intimately connected to’ the Reserve, that is, an ‘integral part’
of Reserve life, or whether it was more appropriate to consider it as part of ‘commercial
mainstream’ activity. We should indicate that the concept of ‘commercial
mainstream’ is not a test for determining whether property is situated on a
reserve; it is merely an aid to be used in evaluating the various factors being
considered. It is by no means determinative. The primary reasoning
exercise is to decide, looking at all the connecting factors and keeping in
mind the purpose of the section, where the property is situated, that is,
whether the income earned was ‘integral to the life of the Reserve’, whether it
was ‘intimately connected’ to that life, and whether it should be protected to
prevent the erosion of the property held by Natives qua Natives.
It is plain that different factors may be given
different weights in each case. Extremely important, particularly in this case,
is the type of income being considered as attracting taxation. Where the
income is employment or salary income, the residence of the taxpayer, the type
of work being performed, the place where the work was done and the nature of
the benefit to the Reserve are given great weight. [Emphasis added]
[26] Based on the Recalma
decision the following are four connecting factors to be given greater weight
in determining whether the Appellant’s employment income is situated on a
reserve:
1. the
residence of the taxpayer;
2. the
type of work being performed;
3. the
place where the work was done; and
4. the
nature of the benefit to the reserve.
Another
significant consideration is whether the income earned was integral to the life
on the reserve and should be protected to prevent the erosion of the property
held by Natives qua Natives.
Residence of the Taxpayer
[27] The Appellant lived in Fort Smith, Northwest Territories during
1995 and not on the Salt River Plains Reserve. Her cheques were received in Fort Smith and kept in a bank in town.
[28] Although the Appellant did not live on the
reserve, unlike the Monias
case she had definite connections to the reserve, through her work and through
the Band members with whom she visited regularly.
Type of Work
Being Performed
[29] Evidence was given at trial that the Appellant
was employed at the Salt River First Nations #195 Band Office located in Fort Smith, Northwest
Territories as a Communications Officer. In the
Appellant’s written arguments she described her role as a Communications
Officer trainee, her duties entailing the following:
· Attend/record/transcribe/file all band council
meetings;
· Record via video/tape-recorder/notes with
elders/youths and leaders of historical information. i.e. trapping/traditional
hunting grounds/voice for youth interests;
· Training provided: radio broadcasting (CKLB Radio
broadcast show in Yellowknife, NT), Aurora
College (Communications skills);
· Produce/distribute/mail/file a monthly newsletter
for band membership.
[30] The duties performed by the Appellant were corroborated
by the testimony from Henry Beaver,
who was a council member in 1995 and Francois Frederick Paulette who was a
Chief negotiator also in 1995.
[31] In his testimony Mr. Paulette referred to the
importance of the role of the Communications Officer, he stated:
A: But I just want to make the point that
yes, she was the communications officer for the -- for the band. The evolving
information, I had a – as I was going through the file I came across a
newsletter that was way back, and I should have picked that up but I didn’t. Anyway,
nonetheless – because at the end of the day, we have to – people have to ratify
the process. If the people are not informed about what the treaty process or
the negotiations at the table, they will not negotiate or they would oppose it.
And our ---
Justice Little: So your
point is the communications officer is very important?
A: Yes. And that at the end, my First
Nations, Smith Landing, the referendum had to take 70 percent; 70 percent had
to say yes to the settlement.
[32] Based on the foregoing it is evident that the
work performed by the Appellant was integral to the advancement of the land
claims process and ensured that all members of the Band were informed of the
various activities engaged by the Band on their behalf.
Place the Work is being Done
[33] The Appellant testified that she was on the
Salt River Plains Reserve approximately ten times per month and would be
required to attend weekly Council Meetings.
Mr. Henry testified that there were crude roads leading into the Salt River
Plains Reserve and there were approximately twenty buildings on reserve.
[34] As stated in Shilling the
performance of work off-reserve is an indication that employment income is not
situated on a reserve, but is not in and of itself determinative.
[35] Additionally in Amos the Court
stated that it would be “too arbitrary” to withhold the benefit of section 87
from those employees who worked in the part of the business located on leased
reserve land when those who worked on contiguous reserve land were entitled to
it.
[36] The Appellant worked in both the Band Office
located in Fort Smith but she
was also required to visit the reserve on a regular basis to gather information
from Band members and provided them with copies of the newsletter keeping them
informed of Band activities.
Nature of the
Benefit to the Reserve
[37] The Appellant was required to provide Band
members with up‑to‑date information relating to treaty
negotiations, the re‑creation of elders’ stories and connecting the Band
members with the appointed Chief and Council members.
[38] Although the Appellant did not live on the
reserve the other connecting factors suggest that the income received by the
Appellant should be exempt from tax. The purpose of her position was to connect
all members of the Band, both on and off-reserve, providing information on the
status of treaty negotiations and capturing and recording significant historical
events. The monies earned by the Appellant were intimately connected to the
Native way of life by maintaining historical accounts and publicizing the
negotiations and status of land claims engaged in by the Band, and there was a
discernible nexus between the Appellant’s employment income and the reserve as
her duties were in the furtherance of establishing reserve status.
[39] Additionally, the activities of the Appellant
were not connected to the “commercial mainstream”. As set out in the Appellant’s
written arguments the purpose of the Band Office was to govern its own peoples
and provide leadership in dealing with political issues and ensuring that
treaty obligations were fulfilled by the Canadian Government.
Source of
Funding
[40] Although the Respondent tried to establish
that the monies received by the Salt River First Nation #195 Band were not
solely related to treaty negotiations, based on the Desnomie decision this factor is of little relevance as the agreement need only be
ancillary to a treaty, as such there need only be some link to a treaty.
[41] The Appellant asserted that the funding for
her position was from a government loan for Treaty Land Entitlement
Negotiations (“TLE”), which has a significant link to establishment of treaties
and land claim entitlements. During his testimony Mr. Herbert suggested that the
funding could have also been received from the Indian and Northern Affairs
Canada (“INAC”), but neither could adduce evidence to establish what amounts
were provided under which program.
[42] Considering that the Appellant’s position was
temporary, being for one year, and her title was Communications Office Trainee
it is likely that the monies received to pay her wages were not from general
administrative funding and would have been specified under a specific program
such as the TLE.
Distinguishing
the Adams
Decision
[43] The Adams decision
at first glance would appear to be similar to the fact pattern of the case
under appeal. In that case the Court did not allow for the exemption of tax. Despite
the similarities there are distinct differences that result in this case having
no application to the present appeal.
[44] Firstly, the Appellant in the Adams decision was a secretary for a Band
Office, thus dealing with the daily administrative functions of the Band. In
the present case the Appellant’s work had nothing to do with the daily
administrative functions of the Band, rather her position was created to
provide Band members information relating to the Band activities.
[45] Secondly, the money provided to pay wages to
the Appellant in the Adams
decision was not based on an agreement between the Band and “Her Majesty”. The
TLE funding is provided by “Her Majesty”. Funding provided under the INAC would
be considered provided by “Her Majesty” as it is funding from the Federal Government.
As stated in the Adams
decision “Her Majesty” refers to the Federal Crown.
[46] Thirdly, the Court stated that the facts of
the Adams case were unusual since in that case there was no evidence
that any of the members of the Band actually lived on the reserve. Such is not
the case in the present appeal. There are individuals who live both on and off
the reserve, all of whom the Appellant was responsible for. It therefore
follows that the people benefiting from the Appellant’s services were living
both on and off-reserve.
D. CONCLUSION
[47] Based on Mr. Herbert’s testimony there was an
Order‑in‑Council which declared that the land on which the Band Office
resided was a reserve under the Indian Act, thus the legal documentation
evidencing the intention of the Crown was in place and the exclusion from
reserve status was due to a misinterpretation of this document.
[48] A combination of Mr. Herbert’s testimony along with the criteria
established by the Ross River Dena Council Band case suggests that the lands in which
the Band Office is located and the place in which the Appellant performed her
employment duties were situated on a reserve in 1995.
[49] Although the Appellant did not live on the
reserve, the other connecting factors suggest that the income received by the
Appellant should be exempt from tax. The purpose of her position was to connect
all members of the Band both on and off-reserve, providing information on the
status of treaty negotiations and the capturing and recording of significant
historical events. The monies earned by the Appellant were intimately connected
to the Native way of life by maintaining historical accounts and publicizing
the negotiations and status of land claims engaged in by the Band, there was a
discernible nexus between the Appellant’s employment income and the reserve as
her duties were in the furtherance of establishing reserve status.
[50] Additionally, the activities of the Appellant
were not connected to the “commercial mainstream”. As set out in the Appellant’s
written arguments the purpose of the Band Office was to govern its own peoples
and provide leadership in dealing with political issues affecting and ensuring
that treaty obligations were fulfilled by the Canadian Government.
[51] A key theme in all of the jurisprudence
surrounding the situs of employment income on a reserve is that an
assessment under section 87 of the Indian Act is fact specific,
the result of which will be driven by each particular case’s unique facts. As
stated by Archambault, T.C.J. in the Adams decision:
I do not think that the wording of section 87 of the
Act with respect to personal property which constitutes intangible property is
clear and readily comprehensible. It is, in my view, objectionable that an
income tax exemption should be worded in such vague terms. The interpretation
of that section requires such a subjective balancing of connecting factors to
determine the situs of income – first by civil servants and then by the courts
– that it is bound to give rise to uneven application.
[52] Based on the foregoing, I have concluded on
the unique facts of this case that the employment income received by the
Appellant from the Salt River First Nation #195 and the employment income
received from the Government of the Northwest
Territories would be exempt from taxation by virtue of
section 87 of the Indian Act.
[53] The appeal is allowed without costs.
Signed at Vancouver, British Columbia this 18th day of December 2007.
Little
J.
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