Citation:2006TCC288
Date:20060707
Docket: 2001-4448(IT)G
BETWEEN:
FAY TSURUDA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bell, J.
ISSUES
[1] The issues are:
1. Whether for her 1997, 1998, 1999 taxation years, the Appellant's employment income from 3878 Investments Ltd. ("3878") was exempt from taxation pursuant to the provisions of paragraph 81(1)(a) of the Income Tax Act ("Act") and section 87 of the Indian Act.
2. Whether the Appellant's employment income for her 1997, 1998, 1999 taxation years from 519298 BC Ltd. ("519") was exempt from taxation pursuant to the provisions of paragraph 81(1)(a) of the Income Tax Act ("Act") and section 87 of the Indian Act.
FACTS
[2] The parties filed an Statement of Agreed Facts. The Appellant also gave evidence, as did her son, Dale Tsuruda. The combination thereof produced the following facts. The Appellant is an "Indian" within the meaning of the Indian Act, having achieved that status in 1987. At that time she lived in West Vancouver, not on a reserve. She is a member of the Spuzzum Indian Band ("Spuzzum Band"). That band has Indian reserve land near Spuzzum, B.C. The Appellant has never lived on any Indian reserve.
[3] In 1957 the Appellant married Steve Tsuruda ("Steve"), a non-Indian. Ken Tsuruda ("Ken") and Dale Tsuruda ("Dale") are sons of the Appellant and Steve.
[4] A chart is attached, after paragraph 18, for ease of comprehension. Bayside, which has been in business since 1986, operated a sawmill and sold wood products. It entered into a Management Services Contract on January 1, 1991 with 394 to have 394 assist Bayside in the administration of its business and affairs for a management fee of $255,000 per annum and a bonus based on performance and Bayside's profitability.
[5] 3878 was incorporated on February 28, 1994 to hold the Management Services Contract assigned to it by Cranefield, formerly 394, on June 30, 1994. Both 394 and 3878 were wholly owned by the Appellant. Although the evidence is vague, it appears that the Appellant sold her shares of Cranefield to Cranefield International Inc. ("CI") and then, apparently, "rolled" her shares of CI into 519 which subsequently sold those shares for a substantial sum. During the taxation years under appeal the Appellant was a director and officer of 3878. Dale was a director and president of 3878 during those years. Its registered and records office was located on the Kapilano Indian Reserve No. 5 at 905-100 Kapilano, Park Royal South, ("Park Royal") West Vancouver, British Columbia. No evidence respecting the size of the reserve was adduced. However, Park Royal is located in a heavily populated commercial and residential area, not in the ordinary sense of a reserve.
[6] From 1992 to 1999, 394's registered and records office was located at the same address as that of 3878. Prior to that time, its registered and records office was located at 1000 - 840 Howe, Vancouver, BC, not on an Indian reserve. The Appellant was a director and the sole shareholder of 394. Dale was a director and officer of 394.
[7] The Agreed Statement of Facts provides that, respecting the Park Royal office:
One of the purposes of renting this office was to secure the tax exemption under section 87 of the Indian Act for the Appellant.
[8] The Appellant testified that 3878 furnished management services to Bayside. She stated that she hired Dale as a director, Dave as manager of the sawmill, and Ken to maintain the sawmill. She stated that meetings were held at the office of 3878, on the reserve, respecting financing, purchases, marketing, union negotiation, legal matters, administrative service and banking and mailing services. She said that it purchased office supplies at a stationery shop on the reserve. She stated that she bought clothes, did banking and shopped on the reserve and that food for meetings at the reserve office came from Park Royal. She said that she was at the office "two to four days" a week. She also said that 3878 paid her by cheque and issued T4's to her.
[9] The Appellant testified that 519 was incorporated to hold shares of Cranefield International Inc. and that it was incorporated as a result of her decision on the advice of her lawyer and accountant. Its address for tax filing purposes was the same as that of 394 and 3878. She said that she decided when to sell the CI shares, based upon the advice of the lawyer and accountant. She also said that she performed services for 519, namely bookkeeping, mail opening, and administration, et cetera, and that meetings respecting the sale of shares were held at the reserve office.
[10] The Appellant also said that 519 paid her by cheque on the reserve and issued T4's to her and that the Canadian Imperial Bank of Commerce, being its bank, was on the reserve. She also testified that she bought clothing and household items on the reserve. She said that 3878 received money from an entity she described simply as NB Contracting, an excavation company and received $70,000 more or less from that entity per year. She said that a man named Nick Bergmach ("Bergmach") managed that entity and ran the excavator and that its business office was on the reserve, as was its registered and records office. She then stated that she was the sole shareholder of that company and that 3878 performed bookkeeping services, filing services and conducted meetings for it. She said that she personally received no income from that company in the years under appeal.
[11] On cross-examination the Appellant stated that she had never lived on a reserve and that the arrangements with 3878 and Bayside and respecting 394 were related to obtaining the Indian Act exemption.
[12] The Appellant also said that Steve spent time at the office on the reserve at meetings and with respect to financial matters, et cetera, but that the majority of his time was spent at the sawmill. The Appellant said that she fixed the amounts that were paid to Steve, Ken and herself by 3878 for management salaries and wages, those amounts being shown in the following table.
|
|
1995
|
1996
|
1997
|
1998
|
1999
|
|
Steve Tsaruda
|
42,000
|
60,000
|
60,000
|
60,000
|
90,000
|
|
Ken Tsaruda
|
42,000
|
60,000
|
60,000
|
60,000
|
60,000
|
|
Fay Tsaruda
|
83,152
|
525,212
|
697,158
|
835,963
|
274,760
|
The Agreed Statement of Facts stated that 3878 received the following management fees.
|
|
1995
|
1996
|
1997
|
1998
|
1999
|
|
Management Fees paid to 3878
|
417,080
|
576,080
|
776,080
|
976,080
|
456,080
|
Bayside deducted the management fees paid by it to 3878. Bayside's payroll was done by a Royal Bank Payroll System not located on a reserve. Steve and Ken, during the three taxation years in question, did not draw any salary from Bayside.
[13] In its taxation year ending January 31, 1998, 519 reported a capital gain and deducted expenses, including a management fee of $600,000 paid to the Appellant. The Appellant had no written management contract with 519.
[14] The Appellant had no involvement with members of the Kapilano Indian Band in their capacity as Band members or as Indian persons. She had no involvement with the Kapilano Indian Reserve other than the fact that 3878 rented an office situated on that reserve and that she, from time to time, purchased supplies from stores situated on the reserve lands leased to non Indians.
[15] The Minister of National Revenue issued Notices of Reassessment reassessing the Appellant in the amounts of set forth, namely:
1997 $697,156
1998 $1,435,963
1999 $274,760
[16] Also, on cross-examination, the Appellant said that she kept no record of the days and duties performed and that this involved an average of about four hours per day. Responding to specific questions regarding services performed by her, she listed those activities as bookkeeping, opening mail, filing, purchasing office supplies, writing cheques for employees, et cetera. Specifically, she answered affirmatively a question suggesting that there were fewer than ten pieces of mail per month. She said that Dale was, she thought, in the office every day but could not say for sure. She said that he was responsible for the daily management of 3878 and that it did not employ any Band members other than herself. She also stated that Dale was in charge of the sale of the CI shares.
[17] The Appellant filed a copy of a document entitled Amended Management Services Contract "dated for reference February 14, 1992". It was among D.Cranefield & Company Ltd.[1] ("Manager"), and Bayside ("Company"), and Steve Tsuruda and Dale Tsuruda ("Directors") and Steve Tsuruda, the sole shareholder of the company ("Shareholder"). A copy of the Management Services Contract dated January 1, 1991 was attached.[2] That contract provided a management fee payable by Bayside to 394 of $255,000 per annum together with a bonus based on the Manager's performance and the company's profitability, stating "such bonus shall be agreed upon between the Manager and the Company on an annual basis". The Manager's duties were described as follows:
The Manager agrees to use its best efforts to carry out its duties and obligations hereunder and to promote the business and affairs of the Company.
The only other clause in that document relating to the Manager's duties reads as follows:
The Manager agrees to provide a full report on the affairs of the Company to the board of directors of the Company in such manner as the board of directors of the Company may require from time to time, provided that at least once in each fiscal year of the Company the Manager shall provide the board of directors of the Company with such a report.
The Amended Agreement simply provided for the term of the agreement and the right to withdraw $21,250 per month. By an Assignment and Assumption Contract, D. Cranefield & Company Inc. assigned the contract to 3878 as of June 30, 1994.
[18] Another document filed was a Management Services Contract made effective as of July 1, 1994 between the Appellant and 3878. Under this contract, 3878 retained the Appellant as Manager to assist the Company in the administration of its business. The clause referring to Remuneration of Manager reads as follows:
3.1 For performing the management and administrative duties pursuant to the terms of this Agreement, the Manager shall be paid a management fee based on the Manager's performance and the Company's profitability, (the "Fee") such Fee shall be agreed upon between the Manager and the Company on an annual basis during the term hereof and shall be paid by the Company to the Manager within thirty (30) days of the Company's fiscal year end; provided that failure to reach such agreement or to pay such bonus shall not in any way affect this Agreement and the rights and obligations of the parties hereunder and the matter shall be referred to a single arbitrator appointed pursuant to the provisions of the Arbitration Act (British Columbia). Notwithstanding the foregoing, the fee shall not be less than fifty percent (50%) of all net revenues, less the Fee, of the Company or thirty thousand ($30,000.00).
The description of Manager's duties was simply:
4.1 The Manager agrees to use its best efforts to carry out its duties and obligations hereunder and to promote the business and affairs of the Company.
ANALYSIS AND CONCLUSIONS
[19] Section 87 of the Indian Act reads as follows:
87. (1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely,
(a) the interest of an Indian or a band in reserve lands or surrendered lands; and
(b) the personal property of an Indian or a band situated on a reserve.
(2) No Indian or band is subject to taxation in respect of the ownership, occupation, possession or use of any property mentioned in paragraph (1)(a) or b) or is otherwise subject to taxation in respect of any such property.
(3) No succession duty, inheritance tax or estate duty is payable on the death of any Indian in respect of any property mentioned in paragraphs (1)(a) or (b) or the succession thereto if the property passes to an Indian, nor shall any such property be taken into account in determining the duty payable under the Dominion Succession Duty Act, chapter 89 of the Revised Statutes of Canada, 1952, or the tax payable under the Estate Tax Act, chapter E-9 of the Revised Statutes of Canada, 1970, on or in respect of other property passing to an Indian.
[20] Section 81 of the Income Tax Act reads:
81. (1) There shall not be included in computing the income of a taxpayer for a taxation year,
(a) an amount that is declared to be exempt from income tax by any other enactment of 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; ...
Section 89(1) of the Indian Act reads:
Subject to this Act, the real and personal and personal property of an Indian or a band situated on a reserve is not subject to charge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian.
Section 90(1) of that Act reads:
90. (1) For the purposes of section 87 and 89, personal property that was
(a) purchased by Her Majesty with Indian monies or monies appropriated by Parliament for the use and benefit of Indians or bands, or
(b) given to Indians or to a band under a treaty or agreement between a band and her majesty
shall be deemed always to be situated on a reserve.
[21] In Mitchell v. Peguis Indian Band, [1990] 71 D.L.R. (4th) 193 (S.C.C.), La Forest, J., at 226 stated that:
In summary, the historical record makes it clear that ss. 87 and 89 of the Indian Act, the sections to which the deeming provision of s. 90 applies, constitute part of a legislative "package" which bears the impress of an obligation to native peoples which the Crown has recognized at least since the signing of the Royal Proclamation of 1763. From that time on, the Crown has always acknowledged that it is honour-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 the chattels on that land base.
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.
(emphasis added.)
He quoted with approval the following passage from Leonard v. R. In Right of British Columbia, [1984] 52 B.C.L.R. 389 at 395:
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.
(emphasis added.)
[22] La Forest, J. further said, at 228:
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.
I draw attention to these decisions by way of emphasizing once again that one must guard against ascribing an overly broad purpose to ss. 87 and 89. 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 is simply to insulate the property interests of Indians in their reserve.
(emphasis added.)
Justice LaForest's beautifully crafted language inMitchell constituted an unclouded judicial comment on the meaning of section 87 of the Indian Act. Since that time the jurisprudence has spread its arms to embrace situations whose growing remoteness from the simple accuracy of Justice LaForest's vision is profoundly confusing. Indeed, the dual nature of reasons for judgment in several cases provide cherry picking counsel, at best on occasion, with nominal word support for their position.
[23] In Williams v. Canada, [1992] DTC 6320 at 6326, a unanimous Supreme Court of Canada described the following method of determining where employment income is situated:
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.
Before stating the foregoing, the Court said at page 6326:
... it would be dangerous to balance connecting factors in an abstract manner, divorced from the purpose of the exemption under the Indian Act. A connecting factor is only relevant in so much as it identifies the location of the property in question for the purposes of the Indian Act.
These portions of Williams are quoted, not for the purpose of employing the connecting factors in the present case, but to present the Supreme Court's point that the analysis of these factors takes place in the context of the effect of their application, namely, the potential
erosion of the entitlement of the Indian qua Indian on a reserve.
The connecting factors were identified as the residence of the person paying the income, the residence of the recipient, the place of payment, and the location of the qualifying employment income. The issue in Williams was whether income received under the Unemployment Insurance Act was located on the reserve.
[24] Appellant's counsel's written "Argument" relied upon statements to the effect that:
1. The person paying the income, 3878, was the Appellant's employer and was located on a reserve, the Appellant having worked at its office.
2. The taxpayer recipient did not reside on a reserve but that that residence was not an important factor.
3. The place of payment was on the reserve at the office of 3878 and 519.
4. The location of the qualifying employment income, in effect, was on the reserve, the Appellant being paid at the office.
[25] The Argument stated that:
The Tsuruda family's companies have had an office on the Kapilano Indian reserve since 1979 ... and continued to have an office on the Kapilano Indian reserve up until and after the years under appeal. Their companies have had an office on the Kapilano Indian reserve well before the Appellant obtained Indian status, which she obtained in 1987.
It is noted, however, that 3878 was incorporated on February 28, 1994 and 519 was incorporated on May 6, 1996.
The written Argument continued:
Notwithstanding the foregoing, even had 3878 and 519298 been incorporated and their offices placed on the Kapilano Indian reserve for the sole purpose of gaining access to the Indian exemption, the jurisprudence is clear that taxpayers may arrange their affairs in a particular way for the sole purpose of gaining access to statutory provisions to deliberately reduce their tax liability.
Counsel cited Neuman v. M.N.R., 98 DTC 6297 (SCC) at paragraph 39 but neglected to include in his submission the pertinent portion of that paragraph. It reads as follows:
Finally, it is important to remember that this Court held unanimously in Stubart, supra, at p. 575, that a transaction should not be disregarded for tax purposes because it has no independent or bona fide business purpose (Estey, J. wrote for himself and Beetz and McIntyre, JJ.; Wilson, J. wrote concurring reasons for herself and Ritchie, J.). Thus, taxpayers can arrange their affairs in a particular way for the sole purpose of deliberately availing themselves of tax reduction devices in the ITA.
The Neuman case had nothing to do with the Indian Act exemption. Counsel also referred to Recalma v. The Queen, 98 DTC 6238 in which the Federal Court of Appeal said, with respect to whether certain investment income was exempt under Section 87 of the Indian Act:
There is, of course, nothing wrong with Canadians arranging their affairs in order to minimize their tax burden. This is no less so for Natives than it is for other entrepreneurs who arrange mergers and offshore vehicles to reduce their tax burdens. Some efforts made to save taxes are successful and others are not. We must decide whether this one succeeded or whether it has failed. In our view, it has not succeeded.
The issue was simply whether the Indian Appellants were exempt from tax on investment income derived from Bankers' Acceptances and Mutual Funds purchased by them from the Bank of Montreal at a branch located on other reserve lands.
[26] Counsel also referred to the statement of the Federal Court of Appeal in Shilling v. M.N.R., 99 DTC 5441 in which it said, after referring to Neuman:
This principle must apply equally to Indians who seek the tax advantage of section 87 of the Indian Act and are prepared to enter into legal relationships with that as their only objective.
In that case, in which the Appellant was successful, the Appellant was an Indian living in Toronto. She had been working for AHT, a native health centre through an Indian employer, who carried on business as sole proprietor of a native employment agency called Native Leasing Services (NLS). The proprietor, who resided and conducted business on a reserve, had entered into a contract with AHT. The Appellant contracted with NLS in order to take advantage of section 87 of the Indian Act and thus be exempt from income tax. The Minister of National Revenue assessed her on the basis that her employment income from NLS was taxable. Respondent's counsel submitted that Shilling found employment with AHT but instead of entering into an independent relationship with it, became an employee of NLS and that she did so for the tax advantages and that, accordingly, the location of NLS should be discounted. The Court's response was:
I do not accept this argument. I start from the premise that everyone is entitled to arrange their (sic) affairs to take advantage of statutory tax relief, and that this may be done by creating legal rights and relationship that have no purpose but to obtain that relief.
In Canadav. Folster, (1977), 51 DTC 5315, the Federal Court of Appeal acknowledged that the "history and purpose of section 87 were fully explored
in Mitchell v. Peguis Indian Band." The Federal Court of Appeal said at page 5319:
LaForest J. characterized the purpose of the tax exemption provision as, in essence, an effort to preserve the traditional way of life in Indian communities by protecting property held by Indians qua Indians on a reserve. Section 87, however, was not intended as a means of remedying the economic disadvantage of Indians. Although a laudable goal, it is not for the courts to attempt to achieve it by stretching the boundaries of the tax exemption further than they can be supported on a purposive reading of the legislation. Where, therefore, an Aboriginal person chooses to enter Canada's so-called "commercial mainstream" ... there is no legislative basis for exempting that person from income tax on his or her employment income.
Folster involved the income taxation of an Indian residing on Norway House Indian Reserve and employed as an administrator in the NorwayHouseIndian Hospital. Although the hospital was no longer located on the reserve, as it once was, it was near the reserve and continued primarily to serve the reserve community. The issue in that appeal was whether the employment income should be exempt from income tax pursuant section 87 of the Indian Act. The Federal Court of Appeal's finding is expressed in the following:
... I am of the view that to deny the exemption in this case would amount to an erosion of property held by an Indian qua Indian on a reserve. In light of the purpose of this provision, the Appellant's employment income is personal property which ought to be accorded the full protection of section 87. In my view, too much weight was accorded by the Trial Judge to the exact geographical location of the employment and the residence of the employer; in this case, the federal government. Conversely, insufficient weight was accorded to the actual circumstances surrounding the Appellant's employment, her residence on the reserve and the history of the hospital in which she worked.
The learned Justice then said at 5323 et seq:
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 appellant was a resident of the Norway House Indian Reserve who benefited from and contributed to life on the reserve by working in a hospital near the reserve which was dedicated to meeting the health needs of the reserve community. To attribute great significance to the fact that the hospital is now physically situated not on the reserve, but adjacent to it, obscures the true nature of the employment income in this case. In my view, based on all the factors discussed, the purpose of the legislation is best served by holding that her salary was property held by an Indian qua Indian on a reserve.
...
The Trial Judge's reasoning overlooks the fact that the appellant's work was largely devoted to, and for the benefit of, the Norway House Indian Reserve.
(emphasis added.)
The following words of LaForest J., from Mitchell, bear repetition here, namely:
.. the Crown has always acknowledged that it is honour-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 the chattels on that land base.
[27] Each of the foregoing authorities dealt simply with a single issue respecting Indians as follows:
1. Recalma - the Appellants, living on a reserve, invested in securities at a bank branch on another reserve. The appeal was dismissed because while the bank, dealing in the securities, was located on a reserve, the issuers of securities were not.
2. Shilling - the taxpayer, an Indian, did not live on a reserve. Crown counsel agreed that her residence was irrelevant. Her employment was of benefit to native people and organizations and she chose to work for a company which placed employees with a native health centre. Her employer was situated on a reserve and the location of her qualifying employment income was on a reserve. The judgment reasons stated that Shilling visited her family reserve every second weekend and was said to regard it as her home.
3. Folster - the circumstance are described almost immediately above.
[28] The Appellant, in the present case, did not live on the Kapilano Indian Reserve or, indeed, on any reserve. The three companies, 394, 3878 and 519, owned wholly by her and by whom she was employed, were incorporated after she became qualified as an Indian in 1987. Her evidence, on several occasions, was that the corporate structure was created and economic decisions were implemented, upon the advice of her lawyer and accountant. That reliance, and her frank statement that she sought the tax exemption in section 87 of the Indian Act, suggest strongly the creation of a template which, superimposed on her circumstances, resulted in the creation and presentation of a structure with the appearance of qualifying for tax exemption under the connecting factors test.
[29] As set out above, the Federal Court of Appeal in Folster said:
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.
(emphasis added.)
In the present case, the Appellant's employment and circumstances surrounding it include:
° The Appellant was the sole shareholder of 394, 3878 and 519, all incorporated after 1987 when she regained her Indian status.
° Bayside, which paid huge management fees to the Appellant, was wholly owned by Steve, her husband. He was a Canadian of Japanese descent. He was not an Indian as defined in the Indian Act.
° Bayside's lucrative business was carried on entirely outside any Indian reserve.
° The Appellant's evidence and delivery thereof was, in my estimation, fashioned to impress the Court with the volume of work and importance of services she performed for the companies of which she was sole shareholder.
° The Appellant stated that she acted on the advice of her lawyer and accountant and that the arrangements with 3878 and Bayside and respecting 394 were made to obtain the Indian Act exemption. She stated that 519 was also incorporated as a result of her decision based on the advice of her lawyer and accountant.
° The Appellant purchased office supplies, which were minimal, on the reserve.
° The Appellant testified that she bought clothes, did banking and shopped on the reserve, this being, evidently, personal.
° The management fees paid by Bayside to 3878 for the years 1995 to 1999 inclusive totalled $3,201,400.
° The management salary paid by 3878 to the Appellant in those five years totalled $2,416,245.
° In 1998, a management fee of $600,000 was paid by 519 to the Appellant.
° The Appellant had no involvement with members of the Kapilano Indian Band in their capacity as band members or as Indian persons.
° The Appellant had no involvement with any other Indian band.
° The Appellant lived in West Vancouver, not on a reserve.
° The Appellant never lived on a reserve.
° The land on which the offices of the Appellant's companies were situated was a densely populated commercial and living area just to the west side of Vancouver's Lion's Gate Bridge.
° The Royal Bank Payroll System was not situated on a reserve.
[30] The Appellant incorporated companies, with which she arranged employment. They had absolutely no connection with any Indian reserve other than for the purpose of obtaining the section 87 exemption from income tax. I am not, here, challenging the Federal Court of Appeal's statement that Indians have the same right to arrange affairs to avoid tax as have other Canadian taxpayers. However, the purpose of section 87 as so eloquently described by LaForest, J. is written in the context of property held by Indians:
... which they hold qua Indians, i.e., their land base and the chattels on that land base.
Section 87(1)(b) states that the following property is exempt from taxation:
the personal property of an Indian or a band situated on a reserve.
When my analysis focuses on the nature of the Appellant's employment and the circumstances surrounding it, I am attracted to the words of the Federal Court of Appeal in Folster set out above and repeated here, namely:
Although a laudable goal, it is not for the courts to attempt to achieve it by stretching the boundaries of the tax exemption further than they can be supported on a purposive reading of the legislation.
[31] Yes, the Appellant's employers, wholly owned by her, had their offices on a reserve. Yes, she performed services for those employers on a reserve. Yes, she was paid by those employers on a reserve. Although it may not be very significant, the Appellant did not live on a reserve. The Appellant did not contribute to reserve life in any fashion. The Appellant did not associate with any band or other Indians. The Appellant's husband, a non-Indian, was the sole owner of Bayside which paid the aforesaid significant sums of money to the Appellant's companies, these monies being the source of her salary income. Although this may be argued by some as being irrelevant, it certainly colours the circumstances which I am enjoined to explore and analyze.
The word "qua" employed by the Supreme Court of Canada and the Federal Court of Appeal in the phrase "qua Indian" or "qua Indians" is defined in The New Shorter Oxford English Dictionary, Volume 2 to mean "in the capacity of". It is also defined in Sanagan's Encyclopedia of Words and Phrases Legal Maxims to mean "as". La Forest, J. in Mitchell referred to:
... property which they hold qua Indians, i.e. their base and the chattels on that land base.
Gonthier, J. in Williams asked:
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.
The Federal Court of Appeal in Folster said at 5319:
LaForest, J., characterized the purpose of the tax exemption provision as, in essence, an effort to preserve the traditional way of life in Indian communities by protecting property held by Indians qua Indians on a reserve.
This suggests that the Courts interpreted the term "qua Indian" to mean, or at least, to refer to the normal reserve environment of an Indian - a far cry from the urbanity of an office situated in a busy shopping, office complex seeking to enwrap three of the four connecting factors, the only reason for such location being the attainment of a tax exemption under section 87 of the Indian Act.
[32] Counsel for the Appellant wrote in his submission:
Taxing the Appellant's employment income from 3878 would be an erosion of her property held by her as an Indian qua Indian.
No expansion or explanation of this statement was proffered. In the context of the term "qua Indian", as above discussed, this proposition simply cannot stand. He also made the following statement:
The Appellant does not dispute the fact the nature of her work does not directly connect her employment income to the Kapilano Indian reserve. However, the Appellant's work for 3878 did indirectly provide a benefit to the reserve in that the Appellant, while working for 3878, spent money (including money earned from providing services to 3878) on the reserve (i.e. purchasing clothing, food, using the car wash etc.) and did her banking on the reserve.
The so-called "benefit to the reserve" is too minimal to have any persuasive effect.
[33] Having regard to the foregoing, I have concluded, in the words of LaForest, J. repeated here, 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.
Although section 89 does not have application to this case I have included the quote in its complete form.
[34] I repeat also another statement of LaForest, J., namely:
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 is 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. ... The Alberta Court of Appeal ... captures the essence of the matter when it states ... in reference to s. 87, that:
In its terms the section is intended to prevent interference with Indian property on a reserve.
[35] The Appeal will be dismissed and costs will be awarded to the Respondent.
Signed at Ottawa, Canada, this 7th day of July, 2006.
"R.D. Bell"
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