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Citation: 2007TCC652
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Date: 20071206
Docket: 2003-3371(IT)I
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BETWEEN:
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GILLES GROS-LOUIS,
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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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[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1] These are
appeals from assessments made by the Minister of National Revenue (the
Minister) on March 6, 2003, for the 2001 taxation year and on April 29,
2003, for the 2002 taxation year. The Minister confirmed the assessments on
August 25, 2003. The Minister added $8,764 to the Appellant's 2001 income and
$5,630 to the Appellant's 2002 income as income from investments received from
the Caisse populaire du Village Huron. The addition of the income to the 2002
taxation year resulted in an assessment that no tax was payable. Consequently,
the Appellant has no right of appeal in relation to that year. The Appellant's
appeal from the assessment for the 2002 taxation year is therefore dismissed.
The point at issue remains valid, however, in relation to 2001. The issue is
whether the investment income is personal property situated on a reserve and is
therefore exempt from taxation.
[2] The
Appellant is a Status Indian. He has always resided on the Wendake reserve,
known as Village Huron. He retired two years ago. In the final ten years prior
to his retirement, he worked at making Indian handicrafts. His interest income
was derived from accounts payable and certificates of deposit in the Caisse populaire
du Village Huron. This
appeal was heard with other, similar appeals in which it was agreed that
certain evidence would be placed on the record for all of the cases, including
in the present case, a partial agreement on the facts regarding the Caisse
populaire du Village Huron. These facts are as follows:
[translation]
1.
During
the period relevant to this case, the Caisse populaire Desjardins du Village
Huron (the Caisse) was governed by the Savings and Credit Unions Act,
R.S.Q. c. C-4.1 and the Act respecting financial services cooperatives, R.S.Q.
c. C-67-3 (the Act).
2.
The Caisse was founded
in 1965 and since then, its head office, its only place of business and only
capital asset, has been located on the Village Huron reserve, a reserve within
the meaning of section 2 of the Indian Act (S.C., c. I-5); copies of the
articles of incorporation were produced by consent, as Exhibit A-1.
3.
The Caisse is located
on the Reserve following the manner prescribed in the permit issued by the
Minister of Indian and Northern Affairs, upon approval of the band council, all
in accordance with section 28 of the Indian Act; copies of the permits
in force at all times relevant to the case were produced by consent, as Exhibit
A-2.
4.
All founders of the
Caisse were members of the Huron community, residents of the Reserve.
5.
Between 1997 and 2003,
the board of directors and the audit and ethics committee were composed
entirely of Huron residents of the Reserve.
6.
According to the
articles of incorporation, at the beginning, its recruitment territory was the
Wendake Indian Reserve (the Reserve).
7.
In 1992, the Caisse
changed the territory in which it recruited members and expanded it to include
the Reserve and the Québec Urban Community.
8.
The Caisse, in
accordance with the Act, chose to consider two types of members: regular
members, composed of members of the territory established by the Caisse in its
articles of incorporation, and auxiliary members, from outside its territory.
9.
Gilles Gros-Louis is a
regular member.
10.
Steven Lewin, in Lewin
v. Canada, 1999-504 (IT)G was an auxiliary member.
11.
The regular and
auxiliary members had access to the same products and services. The main
distinction was that auxiliary members did not have the right to vote at the
Caisse's meetings.
12.
From 1996 to 2003, 60%
of the Caisse's members were Indians. Of this percentage, the majority lived
outside the Reserve; at least 95% of Hurons living on the Village Huron reserve
are members of the Caisse.
13.
The Caisse has an
agreement with the Huron Nation Band Council under which it granted housing
loans to Indians living on the Reserve who wanted to purchase or build housing
on the Reserve.
14.
Under the agreement,
the Band Council guaranteed the housing loan up to a certain amount, by way of
a suretyship granted in favour of the Caisse.
15.
From 1997 to 2002, the
maximum amount of the Council's sureties was $105,000 for purchases of housing
that was already constructed. The amount was revised to $150,000 in 2003.
16.
For new housing
construction, the Band Council would grant Huron members assistance or a
contribution not exceeding $58,000 and was prepared to guarantee any loan by
the Caisse up to $47,000 for 1997 to 2002. This amount might also have been
revised in 2003, but the figures are unknown.
17.
This method, by which
the Caisse loaned money to Hurons on the Reserve in exchange for the Band
Council guaranteeing the performance of their obligations, resulted from the
difficulty experienced by Indians living on the Reserve to get loans because of
the exemption from seizure of their property under section 89 of the Indian
Act.
18.
The Caisse cannot seize
property or buildings on the Reserve. It does not lend unless it has a
surety.
19.
If the acquisition cost
of the housing or the construction costs are higher than the amount guaranteed
by the Band Council, the Caisse may, after reviewing the borrowing member's
credit, grant a personal loan, not guaranteed by the Band Council. It would not
require additional guarantees unless the borrowing member is able to provide one,
in which case the Caisse will require it.
20.
The Caisse is willing
to grant housing loans to Indians other than those living on the Reserve, for
properties located on other reserves, in consideration of the guarantees
offered by the Minister of Indian and Northern Affairs.
21.
From 1996 to 2003, loan
activities on the Reserve were not enough to make the Caisse's operations
profitable.
22.
From 1996 to this day,
the Caisse has been seeking borrowers from outside the Reserve and beyond its
territory because its own market is insufficient.
23.
From 1996 to this day,
the Caisse has been actively campaigning for new hypothecary loan clients off
the Reserve, by consulting the real property registry and asking borrowers with
competitors to renew their hypothecs, but with the Caisse.
24.
The Caisse also seeks
out businesses outside the Reserve for commercial loans.
25.
Commercial activities
on the Reserve are not sufficient to make the Caisse's operations profitable.
26.
From 1996 to 2003, the
Caisse had the following income-generating assets:
·
Investments in the form
of cash deposits, investments with the Federation des Caisses Desjardins or
investments elsewhere, and
·
Loans granted to
regular and auxiliary members;
as seen in the financial statements for the
Caisse's fiscal years ending from 1996 to 2003 and filed in support of the
agreement as Exhibit A-3 and in the trial balance filed in support of the
agreement as Exhibit A-4.
27.
Of the Caisse's funds
used for loan activities, at most a third of these funds are lent to Indians on
reserves.
28.
In 2001, the band
council provided surety to the Caisse for loans to Hurons for $824,488.76; a
copy of the band council letter confirming this is submitted as Exhibit A-5.
[3] It was also agreed that
Yvon Bastien's testimony would be made part of the record in the present case.
[4] In addition to facts about
the Caisse populaire du village Huron, its general manager, Yvon Bastien,
explained that even if the Caisse had adopted the general credit management
standard of the Fédération des Caisses populaires Desjardins du Québec (the
Federation) and the financing practice established by the Federation in the
manual on credit for individuals, it also considered the adaptations and
exceptions in other policies adopted by the board of directors. The manager
made specific reference to a benchmark debt service ratio for clients whose
salary is net of tax: this ratio was adopted by the Caisse's board of
directors and makes it possible to fully finance a house on the Reserve. As
needed, the Caisse grants personal loans amortized like hypothecs and confers
authority on the director to grant a loan under circumstances where the
benchmark debt service ratio is exceeded, if, in his judgment, it is
appropriate to do so.
[5] However, the Caisse does
have to justify this practice to the Federation because it contravenes the
standards, and the Federation does not appreciate any deviation from its
standards. The benchmark debt service ratio and the loans granted without a
guarantee or with a guarantee provided by the band council only applies to
Indians who live and work on the Reserve or, more particularly, to Indians
whose income is non-taxable.
[6] In 2001, 60% of the Caisse
du Village Huron members were Indians. The Caisse had between 4,000 and 5,000
members from 1996 to 2003. Its territory, as indicated at paragraph 7 of the
agreed facts, corresponds to that of the Reserve and the Québec Urban
Community. The services to Aboriginal and non‑Aboriginal members are
identical and there is no difference in interest rates for investments offered
to Aboriginal and non-Aboriginal persons. However, interest rates on unsecured
loans, or loans guaranteed by the Band Council, are higher. Off-reserve
hypothecary loans are offered at better rates.
[7] It is of note that,
according to paragraphs 22 to 25 of the agreement of facts, since 1996 the
Caisse expanded its activities beyond its territory to make its operations
profitable. In 1992 it expanded its territory to include the Québec Urban
Community.
[8] The financial statements
for the Caisse Populaire du Village Huron for 1996 to 2003 and the trial
balance for 1993 to 2003 were submitted as evidence. As with the Caisse de
Pointe-Bleue, the assets of the Caisse du Village Huron are composed
mainly of cash deposits and investments in the Federation, which together
accounted, on average, for 25% of the assets in 1996 to 2003. The balance of
the assets is composed of housing loans on and off the Reserve, consumer loans
and business loans.
[9] All of the Caisse du Village Huron's investments are made off
the Reserve and all are managed by the Federation. These are term deposits with
the Federation and mandatory membership shares. Until 2000, the Caisse du
Village Huron also purchased municipal bonds with the Federation. They were
sold in 2001. As for loans to individuals and businesses, which were the most
common at 75% of the Caisse's assets, around 30% of these loans were granted to
Indians living on a reserve, including a reserve other than Wendake. This means
that around two thirds of the Caisse's assets were invested outside the
Reserve. This was true from 1996 to 2003. During that period, the Caisse did
not grant any housing loans guaranteed by the Band Council.
[10] Because I heard Succession Rolland
Bastien v. The Queen, 2003‑4582(IT)G and Alexandre Dubé,
2003-4665(IT)G, I reproduce below the analysis I did and the conclusion I
reached in those cases.
Analysis
[11] The issue is
therefore whether the investment income of an Indian is personal property
situated on an Indian reserve and whether it should be excluded from the
Indian's income pursuant to paragraph 81(1)(a) of the Act, which
provides as follows:
81(1) Amounts not
included in income – 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;
…
[12] The exemption by any other
enactment of Parliament is the exemption set out in section 87 of the Indian
Act (IA), which reads:
87(1)
Notwithstanding any other Act of Parliament or any Act of the legislature of a
province, but subject to section 83 and section 5 of the First Nations Fiscal
and Statistical Management Act, the following property is exempt from taxation:
(a)
the interest of an Indian or a band in reserve lands or surrendered lands; and
(b)
the personal property of an Indian or a band situated on a reserve.
(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.
[13] For paragraph 87(1)(b)
of the IA to apply, three elements must be present: being an Indian within the
meaning of the IA, owning personal property and the property being situated on
a reserve. In the present case, it was admitted that the Appellant is an Indian
and the investment income is property. The dispute relates to the question of
whether the property is in fact situated on a reserve. This question has been
the subject of many decisions of the Tax Court of Canada and the Federal Court,
and several legal principles have been developed through the case law.
[14] Therefore, it is now
possible to establish the legal status of this issue which deals primarily with
taxation of investment income of Indians. The Federal Court of Appeal ruling in
Recalma v. The Queen, (1998) 98 D.T.C. 6238 is the leading case on the
issue of whether or not investment income is to be included in taxable income.
This decision relies on the principles stated in Williams v. The Queen,
[1992] 1 S.C.R. 877. These principles are known as the connecting factors for
determining the situs of property. Recalma has been applied and
followed in Tax Court of Canada and Federal Court decisions (see Lewin v.
The Queen, [2001] T.C.J. 242 and [2002] F.C.J. 1625, Sero and Frazer,
[2001] T.C.J. 345 and [2004] F.C.J. 6, and Large v. The Queen, [2006]
TCC 509).
[15] It is important to remember
the interpretation of the tax exemption granted to Indians within the meaning
of the two above-mentioned legislative provisions in many important judgments,
in particular the limits of the tax exemption established by the Supreme Court
of Canada in Nowegijick v. The Queen, [1983] 1 S.C.R. 29, at
paragraph 21.
Indians are citizens and, in affairs of life not governed by
treaties or the Indian Act, they
are subject to all of the responsibilities, including payment of taxes, of
other Canadian citizens.
[16] This being said, in Mitchell
v. Peguis Indian Band, [1990] 2 S.C.R. 85, La Forest J. commented
on the Crown's obligation to Aboriginal peoples that arises from the signing of
the Royal Proclamation of 1763. He describes this obligation as the obligation
to not dispossess Indians of their property. However, in his analysis of the
interpretation of the IA, he stated the following at paragraphs 88, 91, 92 and
112:
Paragraph 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.
Paragraphs
91 and 92:
… 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.
92. 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 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 in
Bank of Nova Scotia v. Blood, [1990] 1 C.N.L.R. 16, captures the essence of
the matter when it states, at p. 18, in reference to s. 87,
that: "In its terms the section is intended to prevent interference
with Indian property on a reserve."
Paragraph 112:
A reading of the Indian Act shows
that this provision is but one of a number of sections which seek to protect
property to which Indians may be said to have an entitlement by virtue of their
right to occupy the lands reserved for their use. In addition to the
protections relating to Indian lands to which I have already drawn attention,
the range of property protected runs from crops raised on reserve lands to
deposits of minerals; see ss. 32, 91, 92, 93. These sections
restrict the ability of non‑natives to acquire the particular property
concerned by requiring that the Minister approve all transactions in respect of
it. As is the case with the restrictions on alienability to which I drew
attention earlier, the intent of these sections is to guard against the
possibility that Indians will be victimized by "sharp dealing" on the
part of non‑natives and dispossessed of their entitlements.
[Emphasis added.]
[17] At paragraph 123, La Forest
J. provides more details regarding the concept of situs:
123. The conclusion I draw is that it is entirely
reasonable to expect that Indians, when acquiring personal property pursuant to
an agreement with that "indivisible entity" constituted by the Crown,
will recognize that the question whether the exemptions of ss. 87 and 89
should apply in respect of that property, regardless of situs, must turn
on the nature of the property concerned. If the property in question
simply represents property which Indians acquired in the same manner any other
Canadian might have done, I am at a loss to see why Indians should expect that
the statutory notional situs of s. 90(1)(b) should apply in
respect of it. In other words, even if the Indians perceive the Crown to
be "indivisible", it is unclear to me how it could be that Indians
could perceive that s. 90(1)(b) is meant to extend the protections
of ss. 87 and 89 in an "indivisible" manner to all property acquired
by them pursuant to agreements with that entity, regardless of where that
property is held. What if the property concerned is property held off the
reserve, and was acquired by the Indian band concerned simply with a view to
further business dealings in the commercial mainstream?
[18] In Williams, supra,
Gonthier J. made the exemption provided in section 87 subject to the
manner in which Indian taxpayers chose to organize their affairs, particularly
as regards the choice to situate their property on or off a reserve. At
paragraphs 18 and 19, he comments as follows:
18. Therefore, under the Indian Act, an
Indian has a choice with regard to his personal property. The Indian may
situate this property on the reserve, in which case it is within the protected
area and free from seizure and taxation, or the Indian may situate this
property off the reserve, in which case it is outside the protected area, and
more fully available for ordinary commercial purposes in society. Whether
the Indian wishes to remain within the protected reserve system or integrate
more fully into the larger commercial world is a choice left to the Indian.
19. The purpose of the situs
test in s. 87 is to determine whether the Indian holds the property in
question as part of the entitlement of an Indian qua Indian on the
reserve…
[19] In his judgment, Gonthier
J. describes the legal analysis that must be applied to determine whether
taxation violates section 87 if the IA. He addresses the issue of the
weighting of the connecting factors at paragraph 37:
...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.
[Emphasis added.]
[20] Lastly, at paragraph 61, Gonthier J. explains how the situs of
the property in question is to be determined:
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.
[21] These are the connecting factors
that were reiterated in Recalma, Lewin and Sero and
Frazer, and that were used to determine whether investment income should be
excluded from taxable income on the ground that it is situated on a reserve. In
Recalma, the Federal Court of Appeal confirmed the judgment by Hamlyn J.
of this Court and recognized four factors to consider in determining the situs
of investment income.
11. So too, where investment income is at issue, it must
be viewed in relation to its connection to the Reserve, its benefit to the
traditional Native way of life, the potential danger to the erosion of Native
property and the extent to which it may be considered as being derived from
economic mainstream activity. In our view, the Tax Court Judge correctly
placed considerable weight on the way the investment income was generated,
just as the Courts have done in cases involving employment, U.I. benefits and
business income. Investment income, being passive income, is not generated
by the individual work of the taxpayer. In a way, the work is done by the money
which is invested across the land. The Tax Court Judge rightly placed great
weight on factors such as the residence of the issuer of the security, the
location of the issuer's income generating operations, and the location of the
security issuer's property. While the dealer in these securities, the local
branch of the Bank of Montreal, was on a Reserve, the issuers of the securities
were not; the corporations which offered the Bankers' Acceptances and the
managers of the Mutual Funds in question were not connected in any way to a
Reserve. They were in the head offices of the corporations in cities far
removed from any reserve. Similarly, the main income generating activity of the
issuers was situated in towns and cities across Canada and around the world,
not on Reserves. In addition, the assets of the issuers of the securities in
question were predominantly off Reserves, which in case of default would be
most significant.
12. Less weight was properly accorded by the Tax Court Judge, in this case of
investment income, to factors such as the residence of the taxpayer, the source
of the capital with which the security was bought, the place where the security
was purchased and the income received, the place where the security document
was held and where the income was spent. We can find no fault with the
reasoning of the Tax Court Judge in the way he balanced the various connecting
factors involved in this case in the light of the purpose of the legislation.
13. Thus, in our view, taking a purposive approach, the
investment income earned by these taxpayers cannot be said to be personal
property "situated on a reserve" and, hence, is not exempt from
income taxation.
[Emphasis added.]
[22] This approach was followed
in Lewin of this Court and in Sero and Frazer of the Federal
Court of Appeal, supra. In Sero and Frazer, Sharlow J.A. also
took into consideration some criticisms about Recalma, but it did not
retain any that would change her finding that the investment income was not situated
on a reserve. In fact, only Linden J.A., in Recalma, and Tardif J., in Lewin,
recognized the possibility that investment income might be generated on a
reserve. In Recalma, Linden J.A. stated the following at paragraph 14:
…The result may, of course, be otherwise in factual circumstances
where funds invested directly or through banks on reserves are used exclusively
or mainly for loans to Natives on reserves. When Natives, however worthy and
committed to their traditions, choose to invest their funds in the general
mainstream of the economy, they cannot shield themselves from tax merely by
using a financial institution situated on a reserve to do so.
[Emphasis added.]
[23] In Lewin,
at first instance, Tardif J. stated the following at paragraph 36:
If it had been a financial
institution created solely for the purposes, concerns and needs of the Indians
living on the reserve and if the bulk of its income had primarily been
reinvested on the reserve to strengthen, develop and improve the social, cultural
and economic well-being of the Indians living there, the situation could have
been different.
[24] If we return to the four
criteria established by Linden J.A. in Recalma to determine the situs
of investment income, the first three criteria must certainly be met, but the
fourth is the most important: the extent to which the income is derived from
mainstream economic activity or solely or mainly Aboriginal activity. These
four criteria are:
1. the
investment income's connection to the reserve (residence, source of income,
etc.);
2. the
benefit of the investment income to the traditional Native way of life;
3. the
potential danger to the erosion of Native property;
4. the
extent to which the investment income may be considered as being derived from
mainstream economic activity.
[25] Having heard Dubé,
and the other related cases where part of the evidence was submitted, I do not
want to restate the analysis I made. I will therefore limit myself to restating
the passages from my judgment in Dubé, namely paragraphs 45, 46, 47, 48,
49 and 50.
[45] Lastly, we
must determine if the Caisse’s activities have a connection to the reserve. It
is clear from the evidence adduced that the Caisse populaire of the Pointe‑Bleue
Reserve is situated on the reserve, that it serves Indian clients, that it
hires Indian staff and that Indians sit on its board of directors. However, it
must also be acknowledged that the Caisse’s structure and vocation is not
exclusively Indian. It has the same objectives as all other credit unions,
which are explicitly defined in the legislation governing credit unions. It is
a cooperative that anyone may join and it offers its services to all its
members, whether they are Indian or not. The Caisse is subject to federal and
Quebec legislation. The only distinctive characteristic of this credit union is
that it is situated on a reserve and, in my view, that factor carries little
weight in this matter.
[46] In the case at
bar, it is obvious to me that the investment income, in the form of the interest
paid to the Appellant, had a benefit to the traditional way of life of Indians
living on the Obedjiwan or Pointe‑Bleue reserves. However, as
Tardif J. pointed out in Lewin, the operations of the credit union
that paid the Appellant the interest did not serve only the interests of the
reserve and any banking institution situated off the reserve could have
provided the same services. He went on to say that the services provided and
offered by the credit union on the reserve were basically ordinary services
related to the economic aspects of life; they had nothing to do with the
Indians’ culture and traditional way of life.
[47] I do not
believe that there is any potential risk here of erosion of Indian property.
The investment income is the product of capital invested in the Caisse and that
capital is not threatened. It is the growth of that capital and the means used
to accomplish that growth that are the object of the last factor, specifically
whether the income‑generating activity is tied to the economic mainstream
and to what extent.
[48] The question
at issue relates to this last factor, determining the source of the investment
income. In the context of this case, the Appellant must show that the
investment income was generated on the reserve. To that end, the Appellant
tried to show that the Caisse has some autonomy in how it carries out its
general operations beyond its obligations to the Federation. He stressed the
fact that most of the Caisse’s members are Indians and that it is their capital
that the Caisse invests. In my view, the Appellant is trying to show through
these arguments the connection between the Caisse and the reserve and,
possibly, to identify the source of the Appellant’s income, but does it
adequately address the question of how the Caisse generates its investment
income?
[49] It is true
that the Caisse loans money to its members and that many of its members are
Indians. However, the Caisse has three main sources of income, the first being
deposits and investments made with the Federation. Under the legislation, the
Federation has an obligation to put these funds in investment funds and
liquidity funds that, in turn, are invested in the economic mainstream off the
reserve. These investments with the Federation are managed solely by the
Federation and the evidence shows that the Caisse populaire de Pointe‑Bleue
has had surpluses for several years. The evidence also reveals that
approximately 25% of its members’ deposits are invested with the Federation.
The remaining 75% constitutes the Caisse’s second source of income and is
loaned to its members residing on the reserve and off the reserve, notably in
the form of lines of credit and consumer loans. This type of loan by the Caisse
is offered to all members, both native and non‑native, living on a
reserve or off‑reserve. Ministerial guarantees covering housing loans for
Indians are offered to all financial institutions located on or off a reserve
and the Caisse populaire de Pointe‑Bleue therefore does not hold a
monopoly on housing loans on the Pointe‑Bleue or Obedjiwan reserves. It
should also be noted that, based on its financial statements, the Caisse has as
many assets invested with the Federation as it has in loans to its members.
Lastly, there is the income generated from accessory products, such as
administration fees, brokerage fees and others.
[50] It is true that, in the
case at bar, a majority of the members of the Caisse populaire de Pointe‑Bleue
appear to be Indians. I say “appear” because customers are not asked when they
open an account if they are Indians and the status certificate number is not
required. The percentage of Indian members is based on an unofficial evaluation
made by the Caisse’s management. Regardless, even if the majority of the
Caisse’s clients are Indians, these Indian investors do not control the
surpluses invested with the Federation and the Caisse cannot avoid its
obligation to make these investments in the economic mainstream. The Caisse’s
bylaws cannot prescribe that its board of directors be composed solely of
Indians since the legislation governing the Caisse stipulates that members of
the board of directors must be elected by the Caisse’s regular members.
Accordingly, it is virtually impossible to distinguish this case from Lewin
on this point.
[26] It is
true that in the case at bar the Reserve was the place of residence of the
Appellant, the source of the capital, the location of the Caisse populaire, the
place where the investment income, or a major share of it, was used, the
location of the investment vehicle, and the place to which the investment
income was paid. However, these are factors of lesser importance in the
determination of the situs of investment income, where the accent is
placed primarily on the connection of the investment revenue to the reserve and
on the extent to which this income may be considered to be derived from
economic mainstream activity. It is also necessary to consider the benefit of
this income to the traditional Native way of life and the potential erosion of
Native property. This is the context, then, in which the analysis must be made,
as Mr. Justice Linden ruled in Recalma, supra. And this analysis
must also be made, of course, bearing in mind the purpose of the exemption
under the Indian Act, the type of property in question and the nature of
the taxation of that property (Mitchell and Williams, supra).
[27] The operation that must be carried out is
to determine how the income was earned. It must be determined what the Caisse
did with the money, that is to say, what the income generating activities were,
then determine whether these activities were, at the time, strongly connected
to the reserve. In my opinion, the legal entities in question and the
contractual nature of the investment certificates under the Civil Code do
not help us carry out the analysis required under the case law. We must focus
on the intended purpose of section 87 of the Indian Act.
[28] I cannot accept the arguments about
the Caisse's policies regarding unsecured commercial loans to Indians, the debt
service ratio and the argument that interest income is only taxable when paid.
None of this creates a strong connection with the reserve. As for the first two
arguments, they are benefits for the Indian members of the Caisse populaire.
Regarding the interest income, it is taxable even if the taxpayer did not
receive it (paragraph 12(1)(c) of the Income Tax Act). Lastly, I
also cannot accept the argument that there is ambiguity in the interpretation
of the Act. The Federal Court of Appeal precisely formulated the analysis that
is required to address the issue in question.
[29] In this
case, as in Lewin, the Caisse,
its income-generating activities and the connecting factors are the same. As a
result, I must find that the Appellant's investment income is not situated on a
reserve and is therefore not tax-exempt.
[30] The
appeal is dismissed.
Signed at Ottawa,
Canada, this 6th day of December, 2007.
Angers
J.
Translation certified true
on this 8th day
of February 2008.
Monica F. Chamberlain, Reviser
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