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Citation: 2007TCC642
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Date: 20071206
Docket: 2004-110(IT)G
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BETWEEN:
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RENÉ BASTIEN,
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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] This is
an appeal from an assessment made by the Minister of National Revenue (the
Minister) on May 8, 2003, for the appellant's 2002 taxation year. The Minister
disallowed the deduction of the amount of $31,910.69 claimed by the appellant.
This amount represented the investment income that the appellant had received
from the Caisse populaire du Village Huron. The issue, therefore, is whether
this investment income is exempt from taxation on the ground that it is
property held by an Indian on a reserve.
[2] The appellant
is a Status Indian. He was not present at the hearing and was represented by
his son Michel, who is a lawyer. The appellant was in the fur business until
his retirement in 2000. He has been a resident of the Wendake (Village Huron)
Reserve since 1973. He took some handicraft courses at Village Huron and sold
his products (fur hats, etc.) to merchants in Village Huron, shops and
tourists. He uses the services available on the Reserve and the source of his
investments was his savings.
[3] This appeal is one of a
number of similar appeals respecting which it was agreed that certain evidence
would be submitted in each, that evidence being a partial agreement on the
facts regarding the Caisse. 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 in particular 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, which is 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 are produced by consent as
Exhibit A-1.
3.
The Caisse is located
on the Reserve pursuant to the terms and conditions set out on the permit
issued by the Minister of Indian Affairs and Northern Development, 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 dispute
are produced by consent as Exhibit A-2.
4.
All the founders of the
Caisse were members of the Huron community and lived on 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 of the Caisse, at the beginning, its recruitment
territory was the Wendake Indian reserve (the Reserve).
7.
In 1992, the Caisse
changed the territory in which it could recruit members, expanding it to
include the Reserve and the Quebec City Urban Community.
8.
The Caisse, in
accordance with the Act, chose to consider two types of members: regular
members, composed of members in the territory established by the Caisse in its
articles of incorporation, and associate members, from outside its territory.
9.
René Bastien is a
regular member.
10.
Steven Lewin, in Lewin
v. Canada, 1999-504 (IT)G was an associate member.
11.
The regular and
associate members had access to the same products and services. The main
distinction was that associate 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
off the Reserve; at least 95% of the 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 grants housing
loans to Indians living on the Reserve who want to purchase or build a home on
the Reserve.
14.
Under the agreement,
the Band Council guarantees the housing loan up to a certain amount, which it
does by way of a suretyship in favour of the Caisse.
15.
From 1997 to 2002, the
maximum amount of the Council's sureties was $105,000 for purchases of existing
housing. That amount was increased 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 may also have been increased in 2003, but
the figures are not known.
17.
This method, by which
the Caisse loans money to Hurons on the Reserve on the strength of the
Band Council's guarantee of the performance of their obligations, resulted from
the difficulty experienced by Indians living on a reserve in getting loans
because, under section 89 of the Indian Act, their property cannot be
seized.
18.
The Caisse cannot seize
property or buildings on the Reserve. It does not lend unless surety is
provided.
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
some, in which case the Caisse will so require.
20.
The Caisse is willing,
on the basis of the guarantees provided by the Minister of Indian Affairs and
Northern Development, to grant housing loans to Indians other than those on the
Reserve for properties located on other reserves.
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 off the Reserve and beyond its territory
because its own market is insufficient.
23.
From 1996 to this day,
the Caisse has been carrying on an offensive aimed at gaining new hypothecary
loan clients off the Reserve by consulting the land register and inviting
borrowers with competitors to renew their hypothecs, but with the Caisse.
24.
The Caisse also
solicits businesses off the Reserve with a view to having them take out
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 and investments with the Fédération des Caisses Desjardins or
elsewhere, and
·
Loans to regular and
associate members,
as seen from the financial statements for
the Caisse's fiscal years ending from 1996 to 2003 and filed as Exhibit A-3 in
support of this agreement and from the trial balance filed as Exhibit A-4 in
support of this agreement.
27.
Of the Caisse's funds
used for loan activities, at most a third of them are lent to Indians on
reserves.
28.
In 2001, the Band
Council provided surety to the Caisse for loans to Hurons totalling
$824,488.76; a copy of a letter from the Band Council confirming this is filed
as Exhibit A-5.
[4] It was also agreed
that the testimony of Yvon Bastien would be entered on the record herein.
[5] In addition to the
facts concerning the Caisse populaire du village Huron, there is the testimony
of its general manager, Yvon Bastien, who explained that while the Caisse has
adopted the general credit organization 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
takes into account the adaptations and exceptions set out in other policies
adopted by the board of directors. The manager made specific reference to a
benchmark debt ratio for clients whose salary is net of tax; this is a ratio
that was adopted by the Caisse's board of directors and that makes it
possible to fully finance a house on the Reserve. Where necessary, the Caisse
grants personal loans amortized like hypothecs and confers authority on the
manager to grant a loan under circumstances where the benchmark debt ratio is
exceeded, if, in his judgment, it is appropriate to do so.
[6] 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 ratio and the granting of loans without a
guarantee or with a guarantee provided by the band council only apply to
Indians who live and work on the Reserve or, more particularly, to Indians
whose income is non-taxable.
[7] In 2001, 60% of the
members of the Caisse du Village Huron were Indians. The Caisse had between
4,000 and 5,000 members from 1996 to 2003. Its territory, as indicated in
paragraph 7 of the agreement on the facts, corresponds to that of the Reserve
and the Quebec City Urban Community. The services to Aboriginal and non‑Aboriginal
members are identical and there is no difference in the interest rates on
investments for 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.
[8] It should be noted
that, according to paragraphs 22 to 25 of the agreement on the facts, since
1996 the Caisse has expanded its activities beyond its territory in order to
make its operations profitable. In 1992 it expanded its territory to include
the Quebec City Urban Community.
[9] The financial
statements for the Caisse populaire du Village Huron for 1996 to 2003 and the
trial balance for 1999 to 2003 were submitted as evidence. The assets of
the Caisse du Village Huron are composed mainly of cash deposits and
investments with the Federation, which accounted for, on average, 25% of
its assets in the years 1996 to 2003. The balance of the assets is composed in
particular of housing loans on and off the Reserve, consumer loans and business
loans.
[10] 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
participation deposits. Until 2000, the Caisse du Village Huron also
purchased municipal bonds from 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.
Analysis
[11] The issue is
therefore whether the investment income of an Indian is 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 Income Tax Act (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.
[12] The exemption by
another enactment of Parliament is that set out in section 87 of the Indian
Act (the IA), which 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.
[13] For paragraph 87(1)(b)
of the IA to apply, three elements must therefore be present: being an Indian
within the meaning of the IA, having possession of personal property, and that
property being situated on a reserve. In the present case, it is admitted that
the appellant is an Indian and that 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 numerous legal principles have been
developed in the case law.
[14] Therefore, it is
possible today to determine the state of the law on this issue, which has to do
primarily with the taxation of the investment income of Indians. The Federal
Court of Appeal decision in Recalma v. The Queen, 98 DTC 6238, is
the leading case on the issue of whether or not investment income is excluded
from taxable income. This decision restates the principles enunciated in Williams
v. The Queen, [1992] 1 S.C.R. 877 (QL). 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. No. 242 and [2002]
F.C.J. No. 1625, Sero and Frazer, [2001] T.C.J. No. 345 and 2004 FCA 6,
and Large v. The Queen, 2006 TCC 509).
[15] It is important to
be mindful of how the tax exemption granted to Indians in the two above-quoted
statutory provisions has been interpreted in a number of important judgments,
and in particular, to bear in mind the limits placed on the tax exemption by
the Supreme Court of Canada in Nowegijick v. The Queen, [1983]
1 S.C.R. 29, at page 36.
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 (QL),
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 that obligation as an obligation not to 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.
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. goes into greater detail regarding the concept of situs:
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 choose 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:
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.
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 of 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 reiterated in Recalma, Lewin and Sero and
Frazer, and which have been used to decide whether investment income should
be excluded from taxable income on
the ground that it is situated on a reserve. In Recalma, supra, at page
6240, the Federal Court of Appeal affirmed the judgment of Judge Hamlyn of this
Court and recognized four factors to be considered in determining the situs
of investment income.
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 [sic]
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.
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.
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 by this Court in Lewin, supra, and by the Federal Court
of Appeal in Sero and Frazer, supra. In Sero and Frazer,
Sharlow J.A. also considered certain criticisms regarding Recalma, but
saw in these none that could change her finding that the investment income was
not situated on a reserve. In fact, only Linden J.A., in Recalma, and
Judge Tardif, in Lewin, recognized the possibility that investment
income might be generated on a reserve. In Recalma, Linden J.A. stated
the following at page 6240:
. . . 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, Judge Tardif 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] Coming back, then,
to the four criteria enunciated by Linden J.A. in Recalma for
determining the situs of investment income, the first three must
certainly be met, but the fourth is the most important, and it is the extent to
which the income is derived from economic mainstream activity or solely or
mainly from Aboriginal economic activity. The 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 of the erosion of Native property;
4. the
extent to which the investment income may be considered as being derived from
economic mainstream activity.
[25] Having heard Dubé
v. The Queen, 2003-4665(IT)G, and the other related cases in which some of
the same evidence was entered on the record, I do not want to repeat my entire
analysis therefrom. I will therefore limit myself to reproducing a few 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 de Pointe‑Bleue
is situated on the reserve, that it serves Aboriginal clients, that it hires
Aboriginal staff and that Aboriginals sit on its board of directors. However,
it must also be acknowledged that the Caisse is not exclusively Aboriginal as
regards its structure and mission. It has the same objectives as any other
credit union, and these are explicitly stated in the statute governing credit
unions. It is a co-operative that anyone may join and it offers its services to
all its members, whether they are Aboriginal 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 the present case.
[46] In the case at
bar, it seems obvious to me that the investment income, in the form of the
interest paid to the appellant, was beneficial to the traditional way of life
of the Aboriginals living on the Obedjiwan or Pointe‑Bleue reserves.
However, as Judge Tardif 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. Judge Tardif 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 Aboriginals' culture and traditional way of life.
[47] I do not
believe that there is any potential risk here of erosion of Native property.
The investment income is the product of capital invested with 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, namely,
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, that is, 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
attempted to show that the Caisse has some autonomy in how it carries on its
general operations beyond its obligations to the Federation. He stressed the
fact that most of the Caisse's members are Aboriginals and that it is their
capital that the Caisse invests. In my view, the appellant is seeking 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 that
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 these are
Aboriginals. However, the Caisse has three main sources of income, the first
being deposits and investments with the Federation. The Federation has a
statutory 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.
The departmental guarantees covering housing loans for Aboriginals 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, according to its financial statements, the Caisse has invested with the
Federation funds equal to the amount of its loans to its members. Lastly, there
is the income generated from accessory products such as administration fees and
brokerage fees.
[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 Aboriginals. I say "appear" because
customers are not asked, when they open an account, if they are Aboriginals,
and the Certificate of Indian Status number is not required. The percentage of
Aboriginal members is based on an unofficial evaluation by the Caisse's
management. Regardless, even if the majority of the Caisse's clients are
Aboriginals, it must be acknowledged that these Aboriginal 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 Aboriginals since the statute governing the Caisse provides 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] In the case at bar,
it is true that the Reserve was the appellant's place of residence, the source
of the capital, the location of the Caisse populaire, the place where the
investment income, or a good part of it was 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, as for that purpose the emphasis is mainly on the connection
between the investment income and the Reserve and the extent to which that
income can be considered as being derived from an economic mainstream activity.
We must also take into account the beneficial effect of the income on the
traditional Native way of life and the potential danger of the erosion of
Native property. It is thus in this context that the analysis must be carried
out, as Linden J.A. held in Recalma, supra. Obviously, that
analysis must also be carried out bearing in mind the purpose of the exemption
set out in the Indian Act, the type of property involved and the nature
of the taxation of this property (Mitchell, supra, and Williams,
supra).
[27] The exercise that
must be engaged in 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, and then whether these activities were, at the
time, closely 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 put forward concerning the Caisse's policies regarding unsecured
commercial loans to Aboriginals and the debt ratio, or the argument that
interest income is only taxable when paid. None of this creates a close
connection with the Reserve. As for the first two arguments, what are actually
involved are benefits for the Aboriginal 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 has precisely formulated the analysis
that is required in order to rule on the point at issue.
[29] In this case, the
credit union, its income-generating activities and the connecting factors are
the same as in Lewin. As a result, I must conclude that the appellant's
investment income is not situated on a reserve and is therefore not tax-exempt.
[30] The appeal is
dismissed and the respondent is entitled to her costs.
Signed at Ottawa,
Canada, this 6th day of December 2007.
Angers
J.
Translation certified true
on this 29th day
of May 2008.
Erich Klein, Revisor
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