Date: 20010403
Docket: 1999-28-IT-I
BETWEEN:
RONNIE JOSEPH ODJIG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
ISSUE:
[1]
The issue is whether the Appellant's employment income from
the Manitoulin Board of Education is exempt from tax in his 1996
taxation year by virtue of section 81 of the Income Tax
Act and section 87 of the Indian Act.
FACTS:
[2]
The Appellant is an Indian as defined in the Indian Act.
At the relevant time he resided on Wikwemikong Reserve
("Reserve") on Manitoulin Island. During the 1996
taxation year the Appellant was engaged by the Manitoulin Board
of Education as a classroom teacher to teach native studies and
the Ojibwe language at Manitoulin Secondary School. Neither the
Board nor the School was situated on an Indian reserve. Native
students[1]
comprised approximately 40 percent of the student population at
the school and approximately 70 percent of the students who
attended the Appellant's classes.
[3]
Pursuant to the Education Act of Ontario the Manitoulin
Board of Education entered into an agreement with the Reserve for
the payment of tuition by the Reserve to the Board. The tuition
funds were combined with other sources of revenue and used in the
operation of the school system.
[4]
The Manitoulin Board of Education evidently paid the
Appellant's salary at the school.[2]
[5]
It was agreed that the Manitoulin Board of Education was not an
Indian organization controlled by one or more Indian Bands or
tribal councils and was not dedicated exclusively to the social,
cultural, educational or economic development of Indians.
[6]
In computing taxable income for his 1996 taxation year the
Appellant claimed 70 percent of his total salary of $50,000 as
exempt from tax because 70 percent of his students were
Indians.
ANALYSIS AND CONCLUSION:
[7]
Section 87 of the Indian Act reads, in part, 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) is otherwise subject to
taxation in respect of any such property.
[8]
Paragraph 81(1)(a) of the Income Tax Act reads as
follows:
There shall not be included in computing the income of a
taxpayer for a taxation year,
... 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.
[9]
In Nowegijick v. Her Majesty the Queen, 83 DTC 5041 the
Supreme Court of Canada, at 5045 found that taxable income was
personal property and said:
A tax on income is in reality a tax on property itself.
[10] Section
87 of the Indian Act requires determination of whether the
Appellant's employment income was personal property situated
on a reserve. In Williams v. Her Majesty the Queen, 92 DTC
6329 the Supreme Court of Canada said at 6336:
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.
[11] This,
according to the Court, requires weighing the connecting factors.
They are, in the context of unemployment insurance payments, in
Williams, articulated by that court as:
(1)
residence of the debtor;
(2)
place where the benefits are paid;
(3)
residence of the recipient; and
(4)
location of the employment income.
The Court determined that the first two factors should be
given limited weight in the unemployment benefits context. It
then determined that because the qualifying employment was on the
reserve, so too were the benefits subsequently received. The
disposition of this case, because of its particular facts, is of
limited assistance in the present appeal.
[12] In
Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85 the
Supreme Court of Canada, per LaForest, J. said at page 130:
I take it to be obvious that the protections afforded against
taxation and attachment by ss. 87 and 89 of the Indian Act
go hand-in-hand with these restraints on the alienability of
land. ...
... The exemptions from the taxation and distraint have
historically protected the ability of Indians to benefit from
this property in two ways. First, they guard against the
possibility that one branch of government, through the imposition
of taxes, could erode the full measure of the benefits given by
that branch of government entrusted with the supervision of
Indian affairs.
and at page 131:
In summary, the historical record makes it clear that ss. 87
and 89 of the Indian Act, the sections to which the deeming
provision of s. 90 applies, constitute part of a legislative
"package" which bears the impress of an obligation to
native peoples which the Crown has recognized at least since the
signing of the Royal Proclamation of 1763. From that time on, the
Crown has always acknowledged that it is honour-bound to shield
Indians from any efforts by non-natives to dispossess Indians of
the property which they hold qua Indians, i.e., their land base
and the chattels on that land base. ...
... 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.
and at page 139:
It would follow that if an Indian band concluded a purely
commercial business agreement with a private concern, the
protections of ss. 87 and 89 would have no application in respect
of the assets acquired pursuant to that agreement, except, of
course, if the property was situated on a reserve. ...
[13] In
Folster v. Her Majesty the Queen, 97 DTC 5315 the Federal
Court of Appeal dealt with a case in which Folster, the
Appellant, was an Indian living on a reserve and employed by a
hospital situated adjacent to the reserve. Approximately 80
percent of the patients of the hospital were Indians that resided
on the reserve. The hospital had at one time been situated on the
reserve and was relocated only because of a fire. The land on
which the hospital was situated was in the process of being
annexed to the reserve. The issue in the case was the
situs of personal property, namely the employment income
of the Appellant. This involved the application of the connecting
factors test. Linden, J.A. added a new element, namely the
preservation of the traditional way of life in Indian
communities. At 5319 he quoted LaForest, J. in Mitchell as
having:
... characterized the purpose of the tax exemption provision
as, in essence, an effort to preserve the traditional way of life
in Indian communities by protecting property held by Indians
qua Indians on a reserve.
[14] In
applying the connecting factors test to employment income, the
learned justice advocated an approach that considers the
"nature of the employment" and the "surrounding
circumstances" of the employment. At page 5323 he said:
... In my view, having regard for the legislative purpose of
the tax exemption and the type of personal property in question,
the analysis must focus on the nature of the appellant's
employment and the circumstances surrounding it. The type of
personal property at issue, employment income, is such that its
character cannot be appreciated without reference to the
circumstances in which it was earned. Just as the situs of
unemployment insurance benefits must be determined with reference
to its qualifying employment, an enquiry into the location of
employment income is equally dependent upon an examination of all
the circumstances giving rise to that employment. Assessing those
factors in the context of this case, I am of the view that the
tax exemption must be accorded to the appellant's income in
order to avoid the erosion of an Indian entitlement. The personal
property at issue is income earned by an Indian who is resident
on a Reserve, and who works for a Hospital which attends to the
needs of the Reserve community; a Hospital that was once located
on, and is now adjacent to the Reserve it services.
He said further:
In my view, when the personal property at issue is employment
income, it makes sense to consider the main purpose, duties and
functions of the underlying employment; specifically with a view
to determining whether that employment was aimed at providing
benefits to Indians on reserves.
[15] In
Recalma v. Her Majesty the Queen, 98 DTC 6238, Linden,
J.A., at 6239-40, summarized the relevant principles in applying
the "connecting factors" test:
In evaluating the various factors the Court must decide where
it "makes the most sense" to locate the personal
property in issue in order to avoid the "erosion of property
held by Indians qua Indians" so as to protect the
traditional Native way of life. It is also important in assessing
the different factors to consider whether the activity generating
the income was "intimately connected to" the Reserve,
that is, an "integral part of Reserve life", or whether
it was more appropriate to consider it a part of "commercial
mainstream" activity. ...We should indicate that the concept
of "commercial mainstream" is not a test for
determining whether property is situated on a reserve; it is
merely an aid to be used in evaluating the various factors being
considered. It is by no means determinative. The primary
reasoning exercise is to decide, looking at all the connecting
factors and keeping in mind the purpose of the section, where the
property is situated, that is, whether the income earned was
"integral to the life of the Reserve", whether it was
"intimately connected" to that life, and whether it
should be protected to prevent the erosion of the property held
by Natives qua Natives.
[16] In
Desnomie v. Her Majesty the Queen, 2000 DTC 6250, the
taxpayer was an Indian employed as Executive Director of a
non-profit corporation whose purpose was to preserve and advance
the education goals of Indian people. He lived in Winnipeg and
worked at his employer's offices. On appeal of an assessment
disallowing his exemption from tax, this Court considered the
five above described connecting factors and found none of them
helpful in connecting the Appellant's employment income to a
reserve. The Federal Court of Appeal dismissed that
Appellant's appeal. In his Reasons for Judgment Rothstein,
J.A. at 6254-55 said:
In close cases, such as Folster special circumstances
of the employment may assist in determining the situs of
the employment income. However, where all other possible
connecting factors would not situate the employment income on a
reserve, it is highly unlikely that the special circumstances of
the employment alone would be such as to tip the balance the
other way. ...
[17] In
Southwind v. The Queen, 98 DTC 6084 (F.C.A.) Linden, J.A.
stated at page 6087:
In concluding, it should be noted that section 87 does not
exempt all Natives resident on a Reserve from income taxation.
The process of determining the tax status of income earned by
Natives on Reserves has become quite complex, depending on a
sophisticated analysis of a series of factors. It may appear to
some that inconsistencies exist in the treatment of the various
cases, but each of them depends on its unique facts. All we can
do is evaluate the factors and draw the lines, as best we can,
between business income and employment income that is situated on
the Reserve and integral to community life, and income that is
primarily derived in the commercial mainstream, working for and
dealing with off-reserve people.
[18] In
Brant v. The Queen (1998) 152 F.T.R. 28, Rothstein, J.A.
considered the composition of the Appellant's clients in
applying the connecting factors test. He stated at page 33:
The plaintiff says 50% of his clientele are Indians and that
this is a strong connecting factor. The defendant says 50% of the
plaintiff's clientele are non-Indians and that this is a weak
connecting factor. The cases such as Southwind suggest
that where a business caters to Indians and non-Indian customers
alike, this is an indication it is a commercial mainstream
business which would tend to be a factor that discounts the
property in question from being considered as situated on the
reserve. That is the situation here.
[19] The Court
asked Appellant's counsel, for the purpose of exemption, how
he tied the employment income to the statutory requirement that
the personal property of an Indian be situated on a reserve. His
response was "... you tie that through the tuition
agreement". He said that the agreement provided that:
The parties agree to actively recruit provincially qualified
Amerindian teachers in fulfilling future vacancies on their
staff, provided the qualifications and abilities are judged to be
equal to other applicants.
... The parties agreed that where the numbers warrant the
Board shall offer the Ojibwe language instruction in its
secondary schools according to Provincial Ministry of Education
Native Second Language Guidelines and Memorandum 91A.
[20] Counsel
submitted that the Reserve was paying for a language teacher
through the tuition agreement and that although the Appellant was
paid by the School Board, the purpose of his employment was the
fulfilment of that obligation. He added that the Appellant was an
Indian living on a reserve providing services that benefited
children on a reserve which benefits related specifically to them
being native children.
[21] It has
been established that taxable income is personal property and
that, therefore, employment income is personal property. The
question for determination is whether the employment income is
situated on a reserve. The connecting factors as restated in
Desnomie, are:
(1)
Residence of employer.
(2)
Residence of employee.
(3)
Where the work was performed.
(4)
Where the employee was paid.
(5)
The nature of the services performed or the special circumstances
in which they were performed.
With respect to the first four factors:
(1) The
employer was located on land not on a reserve.
(2)
The Appellant employee resided on a reserve.
(3)
The Appellant employee performed his work entirely on land not on
a reserve.
(4)
The Appellant employee was paid by the employer on land not on a
reserve.
(5)
Do the "special circumstances", combined with the
residence of the Appellant on a reserve "tip the
balance"[3] in
favour of the Appellant? In this appeal the Appellant lived on
the Reserve which paid tuition to the Manitoulin Board of
Education. The majority of native students at the public school
came from the Reserve. Native students comprised approximately 40
percent only of the student population and 70 percent of the
Appellant's class. The Appellant taught the Ojibwe language
and native studies.
However, the native students obviously were taught regular
curriculum courses as well as Native studies. Also, the Appellant
was teaching under contract in a public school not situated on a
reserve. He was paid at that school. He was paid out of the
general revenue of the Board of Education.
I have concluded that the "special circumstances"
outlined above, even though the Appellant resided on a reserve,
cannot justify categorizing the Appellant's employment income
as "personal property ... situated on a reserve" within
the meaning of paragraph 87(1)(b) of the Indian
Act. In the words of La Forest, J. in Mitchell
(supra):
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.
[22]
Accordingly, the appeal will be dismissed.
Signed at Vancouver, British Columbia this 3rd day of April,
2001.
"R.D. Bell"
J.T.C.C.
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