Citation: 2007TCC628
Date: 20071206
Docket: 2003-4101(IT)I
BETWEEN:
LOUISETTE GROS-LOUIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1] These are appeals
from assessments made by the Minister of National Revenue (the Minister) for
the Appellant’s 2001, 2002 and 2003 taxation years. Investment income from the
Caisse Populaire du Village Huron and the Caisse Populaire de Pointe-Bleue
totalling $36,395 for 2001, $31,419 for 2002 and $33,123 for 2003 was added to
the Appellant’s income. After receiving a notice of objection from the
Appellant, the Minister confirmed the assessments on July 2, 2004.
[2] The Appellant is a
Status Indian. She has lived all her life on the Wendake Reserve, where she
also worked. She has never paid income tax on the income she earned on the
Reserve. Her investments are term deposits at the two credit unions referred to
above. She invested her money at the Caisse populaire de Pointe-Bleue because
she studied there during the summers of 1977 to 1979 and opened an account
there. She was a teacher in Wendake from 1971 to 1984. She retired in 1984 to
look after her parents. She withdrew her pension fund and it is that money that
she invested. The issue is whether the Appellant’s investment income is
personal property situated on a reserve and thus exempt from income tax. These
appeals were heard with other, similar appeals in which it was agreed that
certain evidence would be placed on the record for all of the cases, that
being, in this case, a partial agreement on the facts regarding the Caisse
Populaire du Village Huron and the testimony of Anne Gill, Guylaine Simard, Hubert
Robichaud, Gaston Boyer and Yvon Bastien in Alexandre Dubé and Her
Majesty the Queen and Succession Rolland Bastien and Her Majesty the
Queen. I will therefore reproduce the partial agreement relating to the
Caisse populaire du Village Huron and the evidence regarding the Caisse
populaire de Pointe-Bleue. The 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.
Louisette 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] 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.
[4] 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.
[5] 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.
[6] 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.
[7] 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.
[8] 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.
[9] The Caisse
populaire Desjardins de Pointe-Bleue was founded in 1965. Between 1996 and
2002, it had about 3,000 members. In 2006, it had 4,600 members, of which about
4,200 were Indians who lived on the reserve and about 400 were neither Indians
nor residents of the reserve. There are no restrictions on who can become a
member of the Caisse. Although the majority of the Caisse’s members are
Indians, the Caisse’s staff does not ask clients interested in opening an
account if they are Indian. Nor do they ask them to disclose their status
certification number. The membership list does not indicate whether the members
are Indians or not. Indeed, the percentage of Indian members is based on an
estimate by the Caisse’s management. Of these members, 30% are residents of the
Obedjiwan reserve. The Caisse’s primary area is Pointe‑Bleue, but there
is nothing preventing a non‑resident from becoming a member.
[10] There are two
membership categories: regular members and auxiliary members. A regular member
resides within the Caisse’s territory and is entitled to vote at meetings of
the Caisse. Auxiliary members do not reside within the territory and while they
can attend meetings, they may not vote. There is no other restriction. Despite
this difference, the Appellant was apparently a regular member, even though she
does not reside within the Caisse’s territory. It would appear that the
Caisse’s is larger, according to its directive.
[11] The Caisse’s board
of directors is composed of seven members who were, at the time of the hearing,
all Indians and residents of Pointe‑Bleue. The evidence did not show if
the Caisse’s by-laws require that the board of directors be composed of Indian
members. As for the position of director, there is no requirement that an
Indian hold this position, or that the Caisse’s employees be Indian. If
individuals hold the same qualifications, an Indian would be given preference.
[12] The Caisse has three
main sources of income: income from deposits and investments it makes with the
Fédération des caisses populaires Desjardins (the Federation) with which it is
affiliated, certain investments are mandatory for all credit unions, such as
the investment fund and the liquidity fund; income generated from loans made to
its members; and accessory products, such as administration fees, the sale of
travellers cheques and brokerage fees.
[13] The Caisse’s balance
sheet, as adduced, reveals that it has the same level of funds invested with
the Federation as it has in loans made to its members. In 2004 and in 2005, the
Caisse had liquid assets and investments in the amount of $34.9 million
and $39 million in each of these years.
[14] Term deposits
invested with the Federation are managed solely by the Federation and represent
the surplus savings that the Caisse is unable to loan to its members. In this
instance, the Caisse has had surpluses for several years.
[15] As for the
investments and deposits with the Federation, these are qualifying shares,
mandatory deposits, liquidity deposits and others. In terms of the loans to
members, they consist of on‑reserve housing loans and off‑reserve
hypothecary loans, consumer loans, investment loans, such as lines of credit,
and business loans, all both on and off the reserve.
[16] The Caisse received
deposits from its members in the order of $51 million and $55 million
in 2002 and 2003 and made loans in the order of $39 million and
$40 million in these same years. These figures show that it loans about
75% of the deposits it receives from its members or 75% of its revenue. The
excess liquidity is invested with the Federation, which explains the asset
shown on the balance sheet and to which I referred earlier.
[17] The Caisse does not
have status as an Indian business and pays deposit insurance premiums for all
its members. Each year since 2003, it has remitted $75,000 in gifts and
sponsorships to the Pointe‑Bleue and Obedjiwan communities or reserves.
The proportion of loans granted to its Indian members is 77%.
Analysis
[18] 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) Statutory exemptions – 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.
[19] 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.
[20] 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 personal 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.
[21] 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).
[22] 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.
[23] 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.]
[24] 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?
[25] 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…
[26] 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.]
[27] 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.
[28] 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.]
[29] 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.]
[30] 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.
[31] 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.
[32] 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.
[33] In the present case,
it is true that the Reserve was the Appellant's place of residence and the
location of the source of capital, the location of the Caisse populaire, the
place the investment income was used or mostly used, the location of the
investment vehicle, and the place where the investment income was paid.
However, these are factors of lesser importance in determining the situs of
investment income, in which case emphasis is mainly on the connection between
the investment and the reserve and the extent to which the income can be
considered as being derived from mainstream activities. Consideration must also
be given to the benefit of the income on the traditional Native way of life and
the potential danger to the erosion of Native property. It is in this context
that the analysis must be carried out, as Linden J. stated in Recalma, supra.
Obviously, the analysis must also be carried out while taking into
consideration the purpose of the exemption set out in the Indian Act,
the type of property in question and the nature of the taxation of this
property (Mitchell and William, supra).
[34] 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.
[35] 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.
[36] In this case, as in Lewin,
the credit unions, their 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.
[37] The appeal is
dismissed.
Signed at Ottawa,
Canada, this 6th day of December 2007.
"François Angers"
Translation
certified true
on this 8th day of February 2008.
Monica F.
Chamberlain, Reviser
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