Citation: 2013 TCC 181
Date: 20130610
Docket: 2009-2302(IT)G
BETWEEN:
THE ESTATE OF CHARLES PILFOLD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
C. Miller J.
[1]
The late Charles
Pilfold was a Status Indian. He fished for a living. His income in 2000 and
2002 arose mainly from fishing roe on kelp and herring roe, though the manner
in which the income ultimately ended up in Mr. Pilfold’s hands was through
various family held companies, all of which maintained their books and records
on the Musqueam Reserve. The issue is whether the income in 2000 and 2002 is
exempt from taxation due to the interplay between the Income Tax Act
(the "Act") and section 87 of the Indian Act. The
Appellant’s position is that there are sufficiently strong connecting factors
to place Mr. Pilfold’s business income situate on a Reserve: business decisions
were made on-Reserve, corporate records were kept on-Reserve, part of the
catch, being the trimmings, were donated to Reserves and Mr. Pilfold was
resident on-Reserve. The Respondent’s position is that there are few, if any,
substantial connecting factors to find the business income was property
situated on a Reserve. The Respondent asked me to consider: Mr. Pilfold
was not a full-time Reserve resident, the fishing equipment was kept and maintained
off‑Reserve, the business activity itself was off-Reserve, the product
was packed off-Reserve, the product was sold primarily overseas and most
business decisions were made off‑Reserve.
Facts
Background
[2]
Mr. Charles Pilfold was
a Status Indian, married to Frances Pilfold. He died in April 2011 and the
matter has been taken up by his estate, represented by his son, Randolph
Pilfold. Randolph Pilfold was not a Status Indian. He was married to Louisa
Pilfold.
[3]
The Pilfolds, before
the years in issue, established a number of companies for carrying on their
fishing and investment business. Charles Pilfold was a 99% owner of Eldorado
Fishing Ltd., named after the fishing vessel it originally owned. Randolph
Pilfold owned 100% of the common shares of Seafirst Investments Ltd. and Louisa
Pilfold owned 100% of the common shares of Tongass Holdings Ltd. What I would
describe as the major business entity of the family group of companies was
Inter-American Holdings Ltd. ("IAH") held 25% by Charles Pilfold,
25% by Frances Pilfold and 50% by Randolph Pilfold. IAH owned most of the
fishing equipment used in the fishing business, including the boat, the
Calvada. Inter-American Properties Ltd. ("IAP") was a Pilfold
family-owned company that had nothing to do with the fishing business. It held
an interest in a golf course in the State of Washington.
[4]
The books and records
of these companies were kept at the Pilfolds’ home at 4221 Musqueam Drive on
the Musqueam Reserve (the "Musqueam home") in the Vancouver area. Randolph
Pilfold served as business manager for IAH. There was some contradictory
evidence as to who kept the accounts for the companies as Mr. Leong-Sit, the
company’s independent accountant, testified that he believed Charles Pilfold
kept the accounts, while Randolph Pilfold testified that his wife kept the
books. Randolph Pilfold was in the Musqueam home and would know firsthand – I
accept his view.
[5]
Charles Pilfold had
more than one residence. He had a home off‑Reserve in Prince Rupert, with
a telephone number under his name cited in the local directory. He showed this
property as his principal residence on the Prince Rupert 2000 property tax
notice. The evidence was that during the April-May fishing season Charles
Pilfold would retreat to his Prince Rupert home, when not overnighting on the
Calvada. He also had a property in the State of Washington on the golf course
in which IAP held an investment. It was unclear how much time he spent there.
[6]
Apart from fishing, Charles
Pilfold’s passions were golfing and gambling. Not surprisingly, he had a fourth
property in Palm Springs where he spent a few months each year. Finally, Randolph
Pilfold testified that his father lived in the Musqueam home with him, his wife
and their two children. The Musqueam home is jointly owned by Charles and
Frances, and Randolph and Louisa Pilfold. The address of the Musqueam home was
used by Charles Pilfold as his address in filing his returns and in all
correspondence with the Canada Revenue Agency ("CRA"). Further, according
to Mr. Leong-Sit, the independent accountants regarded the Musqueam home as
where Charles Pilfold lived.
Fishing activities
[7]
I will address the
facts involving the fishing activities under the headings planning, fishing,
post-fishing and income therefrom.
Planning
[8]
A considerable amount
of planning centered on the readiness of the equipment. As indicated, IAH held
most of the fishing equipment including the Calvada, though it was Charles
Pilfold who held the commercial licence for herring spawn on kelp (roe on
kelp), which he leased to IAH. Randolph Pilfold also held a licence. Indian
Bands were eligible to get a communal commercial licence for roe on kelp: in
fact, of the seven roe on kelp licences issued in the Province, three were such
communal Band licences. Charles’ and Randolph’s licences were not of that
nature.
[9]
The fishing equipment
was kept either at Steveston Harbour in Richmond, British Columbia or at IAH’s
processing plant in Port Edward – both locations off‑Reserve. As Randolph
Pilfold indicated there was no practical storage space on‑Reserve nor
anywhere on‑Reserve to moor the Calvada, not only not on Musqueam Reserve
but neither at Lax Kw’Alaams Reserve north of Prince Rupert, the region where
the fishing took place. Outfitting the Calvada and conducting any repair work
would take place primarily in Steveston.
[10]
Part of the equipment
included logs that were used to create what Randolph Pilfold called
impoundments or ponds in which the kelp and herring would be placed. The logs
may be kept on shore on Lax Kw’Alaams Reserve lands until hauled into the
water.
[11]
The processing plant
and related equipment was in Port Edwards, off‑Reserve.
[12]
While there was some
other planning involved before the brief April–May roe on kelp season, most planning
had to do with preparing the boat, the equipment, the nets and frames for the
ponds etc. There would also be calls from the Musqueam home to suppliers and
service people, but then such suppliers would be met at the boat in Steveston.
There would be calls arranging for crew. Actual decisions as to where and how
to fish would vary year-to-year and would be made mainly when on the boat,
during the season itself. As Randolph Pilfold said, there would always be a
plan of attack but every year was different. It would obviously depend on where
the fish were. He also indicated that there would be meetings in downtown Vancouver with the Department of Fisheries and Oceans regarding the roe on kelp industry.
All this preliminary activity occurred in February or March, leading up to the
April-May season.
Fishing
[13]
In 2000 and 2002, Charles
Pilfold sailed from Steveston in the Calvada to an area north of Prince Rupert. His wife, Frances, accompanied him. He was captain of the Calvada and the moving
force of the operation. There were several elements to the roe on kelp fishing
operation. Logs would be used to establish the ponds: lines would be anchored
to the beach to stretch the frames out. The Calvada would then go to farm kelp,
primarily off Melville Island. Randolph Pilfold suggested Melville Island was
Reserve land, while Mr. Burns, the Government surveyor who testified,
pointed out there was only one quite small Reserve on Melville Island. The kelp
pickers came from Reserves. A licence was required to harvest kelp: the licence
indicated it was not permitted to harvest from the foreshore fronting
First Nations property.
[14]
The kelp would be taken
to the ponds where it would be attached to lines. It was then necessary to
capture the herring to bring to the ponds for spawning on the kelp. To be
clear, the herring were not caught to be killed but to spawn: they would be
released after fulfilling their function. There is a 21-day period for the roe
to be spawned off, in effect for the product to be ready to harvest.
[15]
Charles Pilfold was in
charge of all aspects of this fishing activity. When the roe on kelp was ready for
harvesting, punts would be used to harvest the product. There would be a
cutting table on board to trim the product, grade it and place it into tote
bags for forwarding to the plant. The trimmings from this operation were donated
by IAH to First Nations.
[16]
There was considerable
discussion as to where the fishing took place, Randolph Pilfold suggesting it
could take place on what he called the foreshore, which could be in up to 60 to
80 feet of water. However, Mr. Burns testified that the foreshore is considered
the area of the shore between the high and low tide, and that this would never
be anywhere near as deep as 60 feet. He also advised that pursuant to the Canada
Land Surveyors Act, Reserve lands extend to the ordinary high water mark
only and do not include the foreshore.
[17]
The costal waters where
this fishing took place was offshore more than one Reserve. There were,
according to Mr. Burns, 24 Reserves in this part of coastal British Columbia,
all of whose boundary was the high water mark and did not include the
foreshore.
[18]
Charles Pilfold’s Prince Rupert home would be used for calls for supplies, crew or other fishing needs
during the fishing season itself.
Post-fishing
[19]
After harvesting, the
product would be taken to the Tenerife Packing Company Ltd., a Pilfold-related company,
in Port Edward, off-Reserve, for grading and packing. Employees at the
processing plant were from First Nations.
[20]
At season’s end (June 1st),
the pond frames would either be put up in Pearl Harbour or left in the
water.
[21]
Different grades of the
roe on kelp product would be sent to potential customers and bids would be
received for the product. Faxes would flow back and forth with the customer until
a contract was reached. Most of the product was sold to Marubeni Canada Ltd., a
Japanese concern, with an office in Vancouver, where Randolph Pilfold would
attend to sign the final contract.
[22]
Workers would be paid
by allocation of crew shares, referred to in IAH’s records as the settlement.
For example, in the 2000 roe on kelp settlement, Eldorado received two crew
shares, as both Charles Pilfold and Frances Pilfold worked on the Calvada.
[23]
This has been a
description thus far of the roe on kelp fishing activity. There was also some
minimal salmon fishing in the coastal waters of British Columbia in 2000 and
2002, as well as a one-day herring roe catch. Interestingly, that one‑day
catch, as opposed to the two month roe on kelp activity, generated half of
IAH’s gross revenue. Both these activities took place in waters off the British Columbia coast, not on-Reserve, and catches would be unloaded off-Reserve in Delta
or Vancouver.
Income
[24]
In 2000, IAH had
revenue of $1,103,019 from fishing activity comprised of:
a) $535,920 from the sale of roe on
kelp;
b) $560,564 from the sale of roe
herring; and
c)
$6,535 from the sale of
salmon
[25]
In 2000, Eldorado
received $150,383 from IAH as a share of profits from the fishing.
[26]
In 2002, IAH had revenue
of $474,201 from fishing comprised of:
a) $234,450 from the sale of roe on
kelp;
b) $217,123 from the sale of roe
herring; and
c)
$22,626 from the sale
of salmon.
[27]
In 2002, Eldorado
received $217,582 from IAH and Seafirst as a share of profits from fishing.
[28]
Charles Pilfold’s gross
revenue from fishing activity for 2000 was received from the following sources:
a) $55,150 from IAH;
b)
$54,823 from Eldorado;
c)
$20,300 from Seafirst;
d)
$20,000 from Tongass.
He also received $13,800 from IAP, which may or may
not have been from the fishing activity. More on that later. He also received
dividends of $450 (grossed up to $563) from IAH.
[29]
In 2002, Charles
Pilfold reported net fishing income of $64,940 from gross income of $65,000.
[30]
There appears to be no
dispute that the $64,940 received by Charles Pilfold in 2002 was attributable
to his involvement as captain of the Calvada as the major force of the fishing
operation.
[31]
The breakdown of how
Charles Pilfold received his income in 2000 is a little more confusing, though
when asked if all his income was ultimately derived from the fishing activity,
his accountant confirmed that yes that was the case. A closer inspection of the
amounts set out above casts some doubt on that proposition.
[32]
The $55,150 from IAH represents
5% of the gross fishing revenues of IAH. How it was actually paid to Charles
Pilfold or described in IAH’s records is unclear. There was some suggestion it
was for consulting fees in relation to the fishing business. Frankly, it does
not matter what it is called. I find that the amount is from IAH’s fishing
revenues for all services rendered by Charles Pilfold as captain of the Calvada.
[33]
The $13,800 from IAP,
given IAP was simply a passive investor in a Washington State golf course, may
not relate to the fishing activity.
[34]
The $54,823 Charles
Pilfold received from Eldorado, his own company, represents a two-crew share
allocation from the fishing revenues received by Eldorado from IAH by
settlement. The two shares arose because Charles Pilfold’s wife worked on the
Calvada, though she did not personally have a crew share passed on to her
through Eldorado, as did Charles.
[35]
The $20,300 from
Seafirst, Randolph Pilfold’s company, and the $20,000 from Tongass, Louisa
Pilfold’s company, are odd, as the evidence presented on this front was a
one-page document entitled Share of Fishing Profits. There were several entries
on this one page, in some cases, share of fishing profits was crossed out and
consulting fee was put in its place. It is worth reproducing this schedule:
[36]
Mr. Leong-Sit attempted
to explain that at year end there would be a discussion with the Pilfolds as to
how to flow the fishing income through the various companies to individuals. It
was never made entirely clear to me what this exercise accomplished, although I
have concluded that, apart from the $13,800 from IAP, the amounts to Charles
Pilfold represented a distribution of business income derived from the fishing
activity. This was the position taken by Mr. Eidsvik, the lead accountant
for the Pilfolds, in his examination for discovery.
[37]
Charles Pilfold
reported $164,013 net fishing income and $563 of grossed up dividends in 2000,
all of which he claimed as exempt pursuant to section 87 of the Act. Similarly,
he claimed an exemption in 2002 for the fishing income of $64,940. The Minister
of National Revenue (the "Minister") denied the exemption of those
amounts on the basis the income was not property situate on a Reserve, as
required by paragraph 87(1)(b) of the Indian Act.
Analysis
[38]
In July 2011, the
Supreme Court of Canada dealt with two cases (Bastien Estate v. Canada and Dubé
v. Canada)
dealing with the issue of where property, in those cases investment income, is
situated for purposes of claiming the exemption under subsection 87(1) of the Indian
Act.
Considerable jurisprudence had evolved around this issue, leading courts to
rely on what are referred to as the connecting factors test. If there were
sufficiently strong, concrete and discernable connections between the property
and a Reserve, the exemption would be available to the Indian. As Justice
Cromwell suggested in Bastien, this approach may seem more the stuff of
metaphysics than legal analysis, it is however what Courts are required to do.
Justice Cromwell went on to "restate and consolidate the analysis that
should be undertaken". In so doing, he confirmed a two-step approach to
first identify potentially relevant connecting factors and second to weigh them
in light of the purpose of the exemption, the type of property and nature of
taxation of that property.
[39]
Justice Cromwell went
on to clarify, in a couple of respects, how this test should be applied. First,
he made it clear that "the availability of the exemption does not depend
on whether the property is integral to the life of the Reserve or to the
preservation of the traditional Indian way of life." Second, he downplayed
the role of the "commercial mainstream" consideration:
52. In my respectful view, the Recalma line of cases has sometimes
wrongly elevated the “commercial mainstream” consideration to one of
determinant weight. More precisely, several decisions have looked to
whether the debtor’s economic activity was in the commercial mainstream even
though the investment income payable to the Indian taxpayer was not. This
consideration must be applied with care lest it significantly undermine the
exemption.
…
60. I do not agree
that the “commercial mainstream” factor should be given determinative weight in
this case. The question is the location of Mr. Bastien’s interest
income. As I have discussed earlier, the question is not where the
financial institution earns the profits to pay its contractual obligation to
Mr. Bastien. Yet the focus of the “commercial mainstream” analysis in the
courts below led them to concentrate the analysis on the Caisse’s income-earning
activities rather than on Mr. Bastien’s. The exemption from taxation
protects an Indian’s personal property situated on a reserve. Therefore,
where the investment vehicle is, as in this case, a contractual debt
obligation, the focus should be on the investment activity of the Indian
investor and not on that of the debtor financial institution: see
McDonnell, at p. 957; Maclagan, at p. 1522; O’Brien, at pp. 1576 and
1580.
…
62. Of course, in determining the location of income for the
purposes of the tax exemption, the court should look to the substance as well
as to the form of the transaction giving rise to the income. The question is
whether the income is sufficiently strongly connected to the reserve that it
may be said to be situated there. Connections that are artificial or abusive
should not be given weight in the analysis. For example, if in substance the
investment income arises from an Indian’s off-reserve investment activities,
that will be a significant factor suggesting that less weight should be given
to the legal form of the investment vehicle. There is nothing of that nature
present in this case. Cases of improper manipulation by Indian taxpayers to
avoid income tax may be addressed as they are in the case of non-Indian
taxpayers.
[40]
So, while not
discounting it entirely as a factor in certain circumstances, Justice Cromwell
was not in the circumstances of locating investment income prepared to give it
any significant weight.
[41]
Subsequent to these
Supreme Court of Canada decisions, there have been cases both in the Tax Court
of Canada and at the Federal Court of Appeal dealing specifically with business
income from fishing. It is instructive to review how the principles enunciated
at the Supreme Court of Canada have been applied in the context of business
income, specifically, business income from fishing.
[42]
In the case of McDonald
v. The Queen,
Justice Valerie Miller, after identifying the purpose of the exemption, the
type of property and nature of taxation, followed the analytical framework
proffered by the Supreme Court of Canada, identifying the following connecting
factors and then ascribing weight to them: i) type of business and
location of business activity; ii) location of customers (debtor) and where
payment was made; iii) residence of business owners; iv) where business
decisions were made; v) where books and records were kept; and vi) the nature
of work and commercial mainstream.
[43]
I note the following
from the Agreed Statement of Facts in McDonald:
(e) During
the years at issue, the Department of Fisheries and Oceans (the “DFO”) issued
communal commercial fishing licenses [sic] to the Band pursuant to its
Allocation Transfer Program (“ATP”);
(f) The
communal commercial fishing licenses [sic] are the collective property
of the Band;
(g) At
all material times, the Band also owned the fishing vessels (the “Vessels”) and
equipment used in their commercial fishing enterprise;
(h) The
Vessels, licenses [sic] and equipment were all acquired through
assistance provided under the ATP;
(i) On
December 31, 2001, the band incorporated Netukulimk Fisheries Ltd. (the “NFL”)
under the Corporations Act of Newfoundland and Labrador;
(j) NFL’s office and place of
business is on reserve;
(k) When
not in use, the Vessels are kept at the wharf facilities on reserve and
equipment is stored at NFL buildings on reserve;
(l) At
all material times, the Band owned all of the shares of NFL and appointed its
board of directors comprised of members of the Band;
…
(s) The Appellants were paid by
cheque issued by NFL.
[44]
Further, a DFO
representative testified the mandate of ATP was to provide economic opportunity
for aboriginal communities without increasing overall pressure on fishery
resources. It does this by buying commercial licences from fishermen who wish
to retire and reissues them to aboriginal communities.
[45]
Justice Valerie Miller
concluded that NFL (located on-Reserve), played a significant role in the
appellants’ fishing income, including paying the appellants. She attached
considerable weight to this factor and little to the fishing being any part of
the commercial mainstream, concluding the work was intimately connected to the
Reserve:
56. However, it is my opinion that
the Appellants’ work was “intimately connected” to the Reserve. The Appellants
lived on the Reserve. They fished on Vessels owned by the Band and pursuant to
licences owned by the Band. They performed some of their work on the Reserve
and they were paid on the Reserve by NFL, a corporation controlled by the Band.
[46]
The Federal Court of
Appeal released two judgments in March 2012, Ballantyne v. Canada and Canada v. Robertson
both likewise dealing with income from fishing. In Robertson, Justice
Evans introduced his analysis as follows:
33. While retaining the essentials of the
connecting factors approach established in Williams
v. Canada, 1992 CanLII 98
(SCC), [1992] 1 S.C.R. 877 (Williams),
the Supreme Court in Bastien and Dubé reset the previous analytical
framework in some significant respects. In particular, the Court emphasized
that section 87 protects only property that is within the boundaries
of the reserve. It also rejected the “commercial mainstream” principle as a
basis for determining if property was situated on a reserve and the notion that
the activities giving rise to the property must be linked to a traditional
Indian way of life.
[47]
Justice Evans also
identified the purpose of the exemption, relying on Justice Gonthier’s
comments in Williams v. Canada
and Justice Cromwell’s tweaking of those comments. With respect to the type of
property and nature of taxation he said:
53. The
property in this case is income that the Appellants earned from their fishing
business in the taxation years in question. Since income is an intangible and
has no physical location, where it is situated is largely governed by the
location of the activities from which the income arises.
54. The
Appellants’ fishing business comprises activities of broadly two kinds: first,
preparing for fishing, catching fish, and preparing them for sale and
transportation; second, the “business” aspects of the enterprise, especially
the sale of and payment for the fish. Locating these activities will go a long
way to determining whether the resulting income is situated on a reserve.
55. Section 87 apart,
the Appellants’ income from their fishing business was their profit from that
business and would be included in their taxable income for that year by virtue
of subsection 9(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).
56. Tax is
imposed by reference to the source of a taxpayer’s income, which, in this case,
is the Appellants’ fishing business. This, too, indicates that the location of
the fishing business will largely determine the location of the income earned
from it.
[48]
He then went on to
emphasize the location of the business activities under the headings of
"fishing" and "selling fish". Under the heading of fishing,
he concluded:
68. Thus, even though the Appellants
do not catch their fish on the Reserve, many of the activities surrounding the
catching of fish are located on reserve. When taken as a whole, these
considerations, in my view, constitute no more than a weak indicator that the
Appellants’ fishing income is situated on a reserve.
[49]
It was, however, under
the heading "selling fish" that Justice Evans appears to have placed
considerable weight, mainly to the important role played by the Norway House
Fishermen’s Cooperative ("Co-op"), as owner and operator of the
packing stations. He stated:
22. On the
basis of evidence of the Co-op’s President, the Judge summarized as follows
(at para. 58) the role of the Co-op in the community, and in the fishing
business of its members in particular:
[The witness] described the Co-op as the
Band’s fishers’ representative, giving the reserve a place in the industry. The
Co‑op represents the fishers, ensuring that they are dealt with honestly
and fairly. … The Co-op certainly plays a role well beyond that as [sic]
acting as an agent or intermediary between the fishers and [Freshwater].
Indeed, its main role was to represent the fishers of the community. … On this
point his evidence was clear: the Co-op was created to help the fishermen.
…
81. Second, to
characterize the Co-op simply as the purchasing agent for Freshwater
substantially distorts its importance to the general economic life of the
Reserve (to which it is the biggest contributor after the federal government)
and to commercial fishing in particular by members of the First Nation,
including the Appellants.
82. For example, the
Co-op controls the quota (and thereby controls the fishers’ income); it
provides financial support through loans for the purchase of boats and other
items needed for fishing; it operates the packing stations and issues receipts
for the fish delivered by the fishers; it administers the funds provided by
Freshwater and pays the fishers for their catch; it facilitates fishers in
hiring helpers on the Reserve by assuming responsibility for their payment and
debiting the fishers’ accounts for the amounts paid; and, most important, it
represents the interests of the fishers in dealing with Freshwater.
83. The Co-op is thus
a critically important institution in the economic life of the Reserve and
pre-dates Freshwater. Its activities permeate all aspects of commercial fishing
by its members, from the provision of interest-free loans for the purchase of
boats and other fishing equipment, to representing the interests of fishers in
negotiations with Freshwater.
84. It is clear from
the evidence that although the Appellants were aware that the fish they caught
were eventually taken by Freshwater and sold to its customers off-reserve, all
their business dealings were with the Co-op. From the perspective of the
fishers, the Co-op bought their fish and paid them for their catch. As the
Judge put it (at para. 68) in reference to Mr Robertson’s evidence:
From his perspective, his connection to the Co-op on
the reserve was an integral part of the activity in which he engaged.
Indeed, it was the beginning and end of his commercial world.
(Emphasis added)
As the Supreme Court has stated in other Aboriginal
rights contexts, the Aboriginal perspective is always important: see, for
example, R. v. Van der Peet,1996 CanLII 216 (SCC),
[1996] 2 S.C.R. 507 at paras. 49-50; Delgamuukw v. British Columbia, 1997 CanLII 302 (SCC),
[1997] 3 S.C. R. 1010 at paras. 81-82; R. v. Marshall, 1999 CanLII 665 (SCC),
[1999] 3 S.C.R. 456 at para. 19.
…
86. Having considered
all the above factors, I have concluded that the business income earned by the
Appellants from commercial fishing is situated on the Reserve and is therefore
not subject to income tax by virtue of section 87. The role
played by the Co-op, an on-reserve institution, in the fishing business of its
members, nearly all of whom live on the Reserve, to my mind, firmly anchors the
Appellants’ business activities to the Reserve.
[50]
Justice Evans also
provided the reasons in Ballantyne, in which he again emphasized the
role of the Co-op. In Ballantyne the difference with Robertson
strengthened Mr. Ballantyne’s connection (residence on-Reserve, packing
stations on-Reserve and the cleaning of fish on-Reserve).
[51]
With this
jurisprudential background, was Charles Pilfold’s income for which he claims an
exemption situated on a Reserve and thus exempt from taxation? In identifying
and weighing various factors, I am mindful of Justice Evans’ comment in Robertson:
42. However, in order to avoid
potentially abusive or artificial manipulation of the connecting factors in
other cases, a degree of flexibility must be maintained in the selection and
weighing of the connecting factors, and in the emphasis given to those that
provide a substantive basis for situating property on a reserve.
[52]
To meet the purpose of
insulating Charles Pilfold’s property interest in Reserve lands from, according
to Justice Laforest in the Mitchell v. Peguis Indian Band case,
"intrusions and interferences of the larger society so as to ensure that
Indians are not dispossessed of their entitlements", there must be a
substantive basis on which to situate that property interest on a Reserve,
especially given the interest is in the form of business income.
[53]
Before specifically
addressing relevant connecting factors, I want to address one element of the
type of property in issue, and that is the $13,800 flowed through to Charles
Pilfold from IAP. IAP had nothing to do with fishing. It was a company with an
interest in a golf course, yet the exhibit referred to in paragraph 35 of my
Reasons suggests the $13,800 was part of the allocation of fishing income,
though not designated as such for IAP, but rather designated as "purchasing
services". I am flummoxed as to what services Charles Pilfold
provided to IAP that might relate to fishing, given IAP’s holdings. Given my
ultimate conclusion on the location of the business income from fishing, it
matters not if I differentiate this $13,800 by source, though if the $13,800
relates to some service provided to a golfing business in the State of Washington, I find less connection to the Musqueam Reserve than income from fishing.
[54]
The factors I have
identified as requiring assessment, following the lead of Justice Cromwell’s
comments and the subsequent decisions of our Court and the Federal Court of
Appeal are as follows:
- residence of Charles Pilfold;
- location of business
activity including where decisions were made, where books and records were
kept, where the planning took place, where the fishing took place and where sales
took place and to whom.
Most attention, I would suggest, should be placed on
the latter category of the business activity itself.
Residence of Charles Pilfold
[55]
Charles Pilfold had
four residences. One on the Musqueam Reserve, sharing the home with his son,
Randolph Pilfold and his family. It was unclear how much time he spent here,
though it was the address he used for his dealings with the CRA, including the
filing of returns. It was also the address his accountant considered as Charles
Pilfold’s home address.
[56]
The second home was in Prince Rupert, off-Reserve. The evidence suggests this was used as a home base during the
fishing season, when not actually overnighting on the Calvada. Charles Pilfold
showed this home as his principal residence on the tax assessment form and also
had a local telephone number listed under his name.
[57]
The third home was in Palm Springs, off-Reserve. There was no specific determination of how many months Charles
Pilfold spent in Palm Springs, other than he would go south to escape Canada’s winter and to golf.
[58]
The fourth residence was
on a golf course in the State of Washington (off‑Reserve): this was the
course in which IAP had an investment interest. Again, Randolph Pilfold
was unable to provide a clear indication of how much time his father spent
there.
[59]
The Appellant maintains
the Musqueam Reserve is the Reserve upon which the business income is situated.
Certainly, Charles Pilfold did spend time living on the Reserve, but he also
spent considerable time living off-Reserve. There is no evidence as to where he
was living when he received the income from the various Pilfold companies,
though clearly he spent his income both on and off‑Reserve. I do not
see how his presence on-Reserve or his absence from Reserve either supports or
rejects any strong connection between the business income and the Musqueam
Reserve. This factor carries little weight. What is more critical to establish
is a sufficiently strong connection between what Charles Pilfold did on‑Reserve
to create the business income.
Business Activity
[60]
I will review the
business activity under the following headings: planning and preparation,
decision making, books and records, fishing, sales.
Planning and preparation
[61]
It was clear from
Randolph Pilfold’s evidence that most of the planning was with respect to
ensuring the boat and all the fishing equipment was in good repair. While
telephone calls may have been made from the Musqueam home to arrange for
repairs, the work itself would have been carried out in Steveston, off-Reserve.
Dealing with the Department of Fisheries and Oceans likewise was off-Reserve in
Vancouver. There was no evidence of any strategic planning meetings involving
Charles Pilfold at the Musqueam home. My impression was more that
Charles Pilfold repaired the equipment and then went fishing. While there
is some connection to the Musqueam Reserve it is, on balance, weak.
Decision making
[62]
The decisions as to
where, when, and how to fish were made primarily during the April-May fishing
season itself, when Charles Pilfold was actually out on the water on the
Calvada. Decisions as to who to sell to and how to divide profits were likely
made on-Reserve, though the extent of such decision-making is unclear.
According to Mr. Leong-Sit, the family, with the accountant’s involvement,
would determine how to flow income out to the various stakeholders. I find while
there is a connection in this regard, it is limited; it is not what I would
describe as substantial.
Books and records
[63]
The Appellant
emphasized the importance of the corporate structure and the fact that the
Pilfold companies’ books and records were kept on the Musqueam Reserve. I have
not been convinced this is as significant as the Appellant claims. Yes, it was
IAH that appears to have been the main legal entity operating the fishing
business, while Charles Pilfold was the individual moving force. But it is
Charles Pilfold’s income from the fishing activity that is at issue.
Flowing this income through four separate companies into his hands, claiming
the corporation’s location on-Reserve is determinative of the location of Charles
Pilfold’s business income is simply too facile and ripe for the type of manipulation
the dissenting voices in the Dubé case warned against. I am not
suggesting the Pilfold companies were established with this in mind. Not at
all. Their history goes back a long way, pre-dating any issue regarding
claiming an exemption. I am suggesting though that the use of non-arm’s length
corporate intermediaries located on-Reserve should not so colour the location
of the property, in this case, Charles Pilfold’s business income, as to
artificially create the situs of the business income.
[64]
This is very different
from the involvement of the Co-op in Robertson and Ballantyne, a Band
organized and operated entity established to assist Band members in every
element of the fishing industry. The Pilfold companies are privately held
family companies making decisions in the best interests of the Pilfold family.
Keeping their companies’ books and records on the Musqueam Reserve is certainly
evidence of some connection between the fishing income and the Reserve, but the
tie between these family companies and the Reserve is simply not of the same
nature as the tie between the Co-op in the Robertson and Ballantyne
cases and the Reserve. The connection here is the physical presence of books
and records on‑Reserve – that is all. I do attribute some weight to this
but do so in the context of the overall substantiality of connections between
the business income of Charles Pilfold and the Reserve.
[65]
My interpretation of
the Appellant’s argument is that simply having the corporate head office
on-Reserve, regardless of the nature or location of the business, is, since Dubé
and Bastien, sufficient to locate any business derived by these
corporate entities on-Reserve, and such situs flows through to an
individual Status Indian recipient of the fishing income, such as Charles
Pilfold. With respect, this would move the subtle shifts in the connecting
factors jurisprudence recommended by the Supreme Court of Canada to an altogether
different bright line test, akin to that of a permanent establishment-like
test. I do not read Dubé or Bastien as going that far.
Fishing
[66]
Notwithstanding the
Appellant’s attempts to suggest that some of the fishing extended into the
foreshore, and that Reserve lands likewise extended into the foreshore, I
reject this position. The fishing did not take place in the area known as the
foreshore (the area between high and low tide), and in any event the Reserve
lands only extend to the high water tide mark, not into the foreshore. The
fishing took place in the coastal waters of British Columbia, not on-Reserve. Most
decisions with respect to the actual fishing were likewise made off-Reserve.
The use of Charles Pilfold’s Prince Rupert home during the fishing season for
contacting workers was likewise off-Reserve.
[67]
It was also suggested
by Randolph Pilfold that harvesting of the kelp off Melville Island was close to,
if not on, Reserve lands. Mr. Burns indicated there was only one small Reserve
on Melville Island which did not extend to the area where the kelp harvesting
took place. Further, the kelp licence explicitly prohibited harvesting of kelp
off First Nations’ shores. I conclude no part of the actual roe on kelp harvesting
or fishing took place on-Reserve.
[68]
After the harvesting of
the roe on kelp, the product was taken for processing to the Tenerife Packing
facility in Port Edward. This process was also off-Reserve. These fishing
activities were a long way from the Musqueam Reserve. There were several other
Reserves along the northern British Columbia coast: no one Reserve along the
coast is connected to this fishing activity. The connection to be determined is
with the Musqueam Reserve in any event.
[69]
With respect to the
other activities of fishing herring roe and salmon, those catches were unloaded
off-Reserve in Delta or Vancouver, British Columbia.
[70]
While I can draw no
connection between the actual fishing activity and the Musqueam Reserve, this
is not fatal to the Appellant’s cause. By necessity, this type of fishing
cannot take place on-Reserve. What it highlights is the need to step back and
take an overall view of all the activity which creates the property in issue,
the business income: in so doing, I find there are insufficient substantial connections.
Sales
[71]
There are two elements
that make up the disposition of the product: the sale of the product itself and
the donation of the trimmings, the latter forming only a small part of the haul
from the three types of fishing. But it is a connection nonetheless that a
portion of the trimmings were donated to First Nations. This connection is pale
in comparison to the sale of product that generated the business income. The
evidence was that the vast majority of product was sold into the Japanese market.
The contract for this transaction was signed at the offices of Marubeni in Vancouver. This is dissimilar from the arrangement in Robertson and Ballantyne
or in McDonald where it was the Co-op or the Band which were found to be
the purchaser of the fisher’s catch. Neither IAH nor Eldorado bought Charles
Pilfold’s catch. IAH was the entity operating the business and selling the
catch to a third party. IAH paid Charles Pilfold directly and indirectly not
for the catch as such but for the captaining of the Calvada. I conclude the
family held companies were not in the same position as the Co-op in Robertson
and Ballantyne nor as the Band in McDonald.
[72]
As emphasized by
Justice Evans in Robertson, with respect to business income, most weight
must be attached to the business activity generating that income. Taking into
account the off-Reserve planning and preparation, the actual fishing activity
and the post-fishing processing and sales, and weighing that against the
part-time residence of Charles Pilfold on the Musqueam Reserve, where the books
and records of the Pilfold companies were kept, I conclude Charles Pilfold’s
business income was not intimately connected to the Musqueam Reserve and
therefore not eligible for exemption under the Indian Act.
[73]
A minor element of this
matter is the $563 grossed up dividend received by Charles Pilfold from IAH. Dividend
income is unlike the investment income addressed by the Supreme Court of Canada
in Dubé and Bastien. Here we have dividends from a closely held
family corporation, the dividends from earnings from the very fishing activity
constituting Charles Pilfold’s business income. It would be an odd result
indeed if the business income flowing out to Charles Pilfold through the
various Pilfold companies is located off-Reserve, while if flowed out by way of
dividends would be considered on-Reserve. No, in this type of situation, it is
necessary to review the same underlying factors. In doing so, I would therefore
characterize the dividend income as likewise off-Reserve.
[74]
The Appeals are
dismissed, however, I am not making any award of costs. The Courts have had to
readjust their analysis in these types of cases since Bastien and Dubé,
and a case such as this is an important step in the evolution of the connecting
factors test. While I have concluded there are not sufficiently strong
connecting factors to allow the exemption, it was evident the Appellant was of
the belief the Supreme Court of Canada had broadened the parameters,
de-emphasizing commercial mainstream, and leading to greater weight to be given
to situs of head office for example. There must, though, still be a
substantial connection between the business income and the Respondent. There
was simply not enough in this case, but the Appellant was right to see how the
post-Bastien and Dubé test for location
of property is to be applied. In these circumstances, I exercise my discretion
to not award costs against the Appellant.
Signed at Ottawa, Canada, this 10th day of June 2013.
"Campbell J. Miller"
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