Barbara L. Faries, Bella Turner, Louisa Gunner, Daisy Jolly, Eleanor McLeod, Frances Trapper, Steve Sackaney, Abraham Rickard and Beatrice Echum v. Minister of National Revenue, [1992] 1 CTC 2295, 92 DTC 1142

Margeson, T.C.C.J.:—The appellant filed appeals from reassessments by the Minister for the 1983, 1984, 1985 and 1986 taxation years. Before trial, the appellant withdrew the appeal with respect to the 1984 taxation year.

The initial position of the appellant was that part of the amounts received by her as salary from the Moose Factory Island District School Area Board were exempt from taxation under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") by virtue of sections 87 and 90 of the Indian Act, R.S.C. 1985, c. 1-5. However, at the trial the appellant took the position that all of the funds received by her were exempt from taxation and relied solely on the argument that the moneys received by her in the years in question were “the personal property of an Indian situated on a reserve" under subsection [sic] 87[1](b) of the Indian Act. The respondent did not object to the appellant taking this position at trial and the matter proceeded on that basis.

Facts

The evidence established that the appellant was a registered Indian under subsection 2(1) of the Indian Act, R.S.C. 1985, c. I-5, as amended. She worked for the Moose Factory Island District School Area Board, at their head office on Moose Factory Island which was located ten miles from James Bay on the Moose River in Ontario. She was employed as an office clerk.

According to her evidence in late 1986, it came to their attention that another Board of Education in Northwestern Ontario had been granted exemption from income tax for similar salaries and the appellant and others inquired of Revenue Canada about their status. They were told that a portion of their income would be exempt and they should apply for reassessment. They did so and obtained refunds. However, their joy was short-lived because Revenue Canada reversed its decision, reassessed them and demanded the return of the refunds. Objections were filed and rejected by Revenue Canada and that gave rise to this appeal.

Exhibit R-1 was admitted into evidence by agreement. It was a subdivision plan of Factory Island on the Moose River and defines Lots 1, 4 and 11. This plan was registered in the office of Land Titles in the District of Cochrane, Ontario, on May 17, 1951, and bears a certificate of the local Master of Titles. A copy of this document was also contained in Exhibit A-1 which was admitted by agreement between the parties. This plan also bears a stamp from the Department of Indian Affairs, survey records number Ontario P.3442, reference LAT.B22-5-51, file 62038 under date 30-5-51.

Exhibit A-1 also contained a copy of Order in Council P.C. 1445 which in turn contained various recitals including a reference to P.C. 2270 of May 9, 1949, which had originally authorized the purchase of the Moose River Residential School located on parcel 4 of Exhibit R-1. The document further set out that the agreement had been reached with the Hudson's Bay Company and the owners of the church lands, so-called, to convey parcels 1, 4 and 11 to His Majesty in Right of Canada, subject to certain limitations as to the user of the land. This Order granted authority to acquire parcels 1, 4 and 11 and confirmed that the funds were available from Vote 56 of the estimates of the Department of Citizenship and Immigration for the fiscal year 1950-51.

The appellant advised that she was unable to obtain a copy of Vote 56 and no further evidence was presented as to its content.

P.C. 5183, an Order of the Privy Council, dated October 3, 1951, was also contained in Exhibit A-1. In the recital, reference is made to P.C. 1445 and the recital contains the following reference:

. . . upon obtaining a good title free from all encumbrances, reservations, encroachments, limitations and conditions, other than such encumbrances, reservations, encroachments, limitations or conditions as in the opinion of the Minister would not affect the use of the land for Indian Reserve purposes.

[Emphasis added.]

Of significance to the appellant's position was the following provision:

That the offer of the Hudson Bay Company to sell the lands at the price aforementioned was subject to the understanding that following the sale, no portion of the lands would be sold, transferred or otherwise disposed of by His Majesty until the Hudson Bay Company had been given the opportunity to repurchase the land and buildings thereon; and the said Company has requested an agreement setting out such understanding, in a form similar to that attached hereto, be executed by His Majesty;

That the proposed agreement will not materially affect the use of the lands for the purposes for which they are being acquired.

[Emphasis added.]

These conditions were set out in an agreement between His Majesty the King in Right of Canada and the Company, dated October 5, 1951. Of some significance to the appellant's argument in this appeal is the following wording of the agreement:

AND WHEREAS the Minister is desirous of establishing and maintaining on the said island a scheme of health and education for the Indians.

An extract from the Reserve General Register, Crown Lands, shows Lots 1, 4 and 11 on Plan M-140 as being conveyed to Canada on February 7, 1952, subject to certain conditions and reservations. On the same page and dated January 25, 1956, the whole of Lot 11, on Factory Island in Moose River—District of Cochrane, Province of Ontario, Plan No. 3442 is shown as conveyed from the Crown to the Band. Other pages show further granting of rights of way respecting the lots in question but those transactions do not bear directly on the issues here.

Of some further significance, although not specifically referred to in the argument is the notation on the Reserve General Ledger, which shows that the Hudson’s Bay Company had agreed to release Lot 11 from the terms and conditions agreed to by Her Majesty, even though that lot was conveyed to the Band.

In cross-examination, the appellant identified Exhibits R-1, R-2 and R-3 being her 1983, 1985 and 1986 income tax returns. She confirmed that the work she performed in the years in uestion was done on Lot 1 for the Department of Indian Affairs and on Lot 4 for the relevant school board.

Further, in cross-examination the witness outlined the boundaries of Lots 1, 4 and 11 and marked with an X the location of the school, and more importantly, the location of the school board office where she worked during the years under review. This office was undoubtedly located on Lot 4. She further confirmed that her understanding about Vote 56 was that in the budget, money had been allocated—that the Minister had been asked that the money be set aside—that is that he went before Parliament with that request and it was approved.

The witness was asked what facts she relied upon for her position that the money became Indian money and she referred to subsection 2(1) of the Indian Act which defines "Indian moneys". She further relied upon Order in Council P.C. 1445, Vote 56 and section 61 which deals with the management of Indian moneys. When asked what facts she relied upon to support her position that the lands were bought for Indian purposes, she referred to P.C. 5185, which purportedly gave the Minister of Citizenship and Immigration the authority to execute an agreement with the Hudson's Bay Company, similar to the one attached to the Order.

The final elicited position of the appellant was that once the document of transfer was signed, Exhibit A-2, conveying Lots 1, 4 and 11 to His Majesty the King in the Right of Canada, the lands became an Indian reserve. She further said that her understanding was that the Government of Canada considered only Lot 11 as Indian reserve land by virtue of Order in Council P.C. 1956-120, and that is what the government has registered on the title as seen from the excerpt from the Reserve General Ledger in Exhibit A-1 as Appendix G.

The respondent presented as a witness Jennifer Bécherel, a lands research officer in the Land Entitlement Section of the Department of Indian Affairs. She was not qualified as an expert witness but it was obvious she had considerable expertise and experience with regard to determining the status of the interest of an Indian band in any particular lot. She was experienced in conducting in- depth research in such interests, in negotiating the return or surrender of Indian lands, had familiarity with the Land Reserve General Register and described how the Department of Indian Affairs kept a record of all lands in which it had an interest in Canada, a record of all reserves in Canada together with a record of all surrendered lands.

Of greater cogency was her evidence that in order for a reserve to be established, the Department of Indian Affairs must first obtain fee simple title to the lands and then the lands must be set aside by Order in Council for a particular Band named in the Order in Council.

The witness testified that she had reviewed the files on the Moose Factory Island reserve and that according to the Department's records, only Lot 11 had been set aside as Indian reserve. She identified Order in Council P.C. 1956-120 admitted as Exhibit R-4, which set apart Lot 11 for the use and benefit of the Factory Island Band of Indians to be designated Factory Island Indian Reserve Number 1. She further identified Lot 11 as shown on Plan P.3442 earlier admitted into evidence.

According to this witness if there had been any changes in the boundaries of the reserve since the Order in Council was made, this would have to be done by a further Order in Council and it would be reflected in the Reserve General Ledger. There were no such changes according to her evidence.

In cross-examination the witness said she had a history degree from Carleton University in Medieval History, had worked for a land research firm who was under subcontract to the Federation of Saskatchewan Indians. She had prepared four papers on land claims for this group which work was to be presented to the Federal Government. She has also worked on Fisheries Boundaries Disputes between Canada and the United States of America. The witnesses referred to a brochure outlining the Indian reserve system which was included in Exhibit A-1 and said she was familiar with it but it was no longer in use as the wording was a bit unclear, in her estimation. She was questioned by the appellant about the reference in the brochure to setting aside lands for the Indians and said she accepted that reference as correct, but added that although any reserve is federal Crown land any particular Band does not have an interest in all such federal Crown land.

It was agreed that some reserve land is set aside for more than one Band although it is not common. However, if the land is set aside for more than one Band, the different Bands are listed.

She was referred to the survey plan in evidence and said that the plan merely outlined Factory Island, it is not a plan of Factory Island Indian Reserve No. 1, that consists only of Lot number 11 as shown by P.C. 1956-120. The fact that the Order in Council refers to the plan as a whole does not make the other lots on the plan part of the reserve.

Issue

The only issue here is whether or not the funds received by the appellant during the years in question were "the personal property of an Indian situated on a reserve" under subsection [sic] 87(1)(b) of the Indian Act.

Argument

As I understand the argument of the appellant, she submits that she is a status Indian and that the evidence shows that under the authority of section 18 of the Indian Act, the government exercised their right and purchased the lands in question, and further they used Lots 1 and 4 for schools, one of the purposes for which the lands were purchased. She says that Lots 1, 4 and 11 were purchased with money set aside for Indians and that the government had no right to set aside only Lot 11 and that when it did so by Order in Council P.C. 1956-120, the Order was invalid.

Furthering this argument, she says that the moneys so set aside can only be used for Indian purposes as set out in subsection 61(1) of the Indian Act, and since the funds so allotted were expended they must have been expended for Indian purposes. She also says that the lands were registered as reserve lands in the Reserve General Register and when the lands were transferred to the federal government by the document of transfer, Exhibit A-2, they automatically became part of the Factory Island Indian Reserve Number 1.

The appellant argues that the whole history of the land as shown by the documents accepted into evidence shows that the purchase of the lands was negotiated for Indian purposes. Further, she argues that if the government had not agreed to this purpose, the lands could not have been purchased from the owners. If they are not Indian lands, then the government has lied to the church and the Hudson's Bay Company when they bought them and also to the Indians.

The appellant submitted that there are three criteria under the Indian Act that have to be met for the land to be a reserve:

1) The money must be allocated for the land;

2) the land must be purchased;

3) the land must be registered in the Reserve General Register.

She argues that all these qualifications have been met; that the declared intention was to make it reserve land; it was purchased with money set aside for Indians and identified as Indian reserve land and the Department of Indian Affairs could do nothing more with it without the consent of the Band.

Respondent's Position

The respondent argues that every resident of Canada must pay income tax on taxable income received under section 2 of the Income Tax Act including the appellant unless she is exempt by virtue of subsection [sic] 87[1](b) of the Indian Act. That subsection should be liberally construed she says and as in the case of Gene A. Nowegijick v. The Queen, [1983] 1 S.C.R. 29, [1983] C.T.C. 20, 83 D.T.C. 5041, where Dickson, J. said at page 23 (D.T.C. 5044, S.C.R. 36):

It is legal lore that, to be valid, exemptions to tax laws should be clearly expressed. It seems to me, however, that treaties and statutes relating to Indians should be liberally construed and doubtful expressions resolved in favour of the Indians. If the statute contains language which can reasonably be construed to confer tax exemption that construction, in my view, is to be favoured over a more technical construction which might he available to deny exemption.

In the case of The Queen v. National Indian Brotherhood, [1979] 1 F.C. 103, [1978] C.T.C. 680, 78 D.T.C. 6488, at page 684 (D.T.C. 6491, F.C. 108-109), Thurlow, A.C.]. said:

I have already indicated that it is my view that the exemption provided for by section 87 does not extend beyond the ordinary meaning of the words and expressions used in it. There is no legal basis, notwithstanding the history of the exemption, and the special position of Indians in Canadian society, for extending it by reference to any notional extension of reserves or of what may be considered as being done on reserves. The issue, as I see it, assuming that the taxation imposed by the Income Tax Act is taxation of individuals in respect of property and that a salary or a right to salary is property, is whether the salary which the individual Indian received or to which he was entitled was "personal property" of the Indian "situated on a reserve".

This approach was adopted in Saugeen Indian Band v. Canada, [1989] 1 C.T.C. 86, 89 D.T.C. 5010, at page 98 (D.T.C. 5016, F.C. 417) where MacGuigan, J.A held that the liberal construction approach should be used not only when the statute is ambiguous, but whenever the statutory language is reasonably open to such liberal construction.

In the National Indian Brotherhood case, supra, page 683 (D.T.C. 6490) Thurlow, A.C.J., had this to say:

The presence of section 90 in the statute is in itself an indication (if any were needed) that section 87 is intended to be interpreted according to the ordinary meaning of the words and expressions used in it and that, save as expanded by section 90 the exemption is no broader than what naturally falls within that meaning.

The respondent argues that the wages in question here were the personal property of an Indian, and the only question is whether or not they were situated on a reserve. The wages are a contract debt and the situs of that debt is the residence of the debtor, or the place where the debtor is found. See the National Indian Brotherhood case, supra, at page 684 (D.T.C. 6491) and Canada v. Glenn Williams, [1990] 2 C.T.C. 124, 90 D.T.C. 6399. According to the respondent the situs of the debtor, the school board, was on Lot 4 where their offices were located and it was not part of the reserve. Kirkness, Sinclair and Wavy v. M.N.R., [1991] 2 C.T.C. 2028, 91 D.T.C. 905, dealt with paragraphs 90(1)(a) and (b) and found that the salaries received were not those contemplated by the subsections. The respondent opines that the method by which the government sets aside a reserve is by Order in Council and in this case the relevant Order in Council is P.C. 1956-120, (Exhibit R-4) which sets aside only Lot 11 and it is described and its boundaries are defined.

The respondent refers to Re Stony Plain Indian Reserve No. 135, [1982] 1 W.W.R. 302, generally I presume for the purposes of arguing that even where a grant is made to a Band or members of a Band, that does not imply that there will be a continuing interest of the Band or members in the grant, nor that it will be kept by the grantees, nor that it will be held for the use and benefit of the Band or its members. By implication from that case she is arguing that just because the land is held by the Department of Indian Affairs that does not make it a reserve.

The respondent takes the position that Order in Council P.C. 1445 only grants authorization for the purchase of Lots 1, 4 and 11 and that funds are available from Vote 56. There is no mention of purchasing it for a reserve. She further argues that P.C. 5185 gave permission to use it for Indian reserve purposes but there is no reference to setting apart the land, nor is there any reference to a particular Band. This Order in Council merely authorizes the signing of the agreement and the agreement does not refer to a reserve and does not name the Band.

It is argued by the respondent that the Court has no authority to make the land part of the reserve in spite of the appellants position that it was always intended to be part of the reserve. The reserve is Lot 11 and the school board was located on Lot 4. The situs is beyond the boundaries of the reserve and therefore the income is not exempt.

In rebuttal, the appellant said that P.C. 1445 does not refer to reserve purposes but it does refer to Lots 1, 4 and 11. Further she says, P.C. 5185 was registered in the Reserve General Ledger.

Analysis and Decision

In order for the appellant to be successful here, she must satisfy me on the balance of probabilities that the office of the Moose Factory Island District School Area Board was located on a“ reserve" within the meaning of the Indian Act. This term is defined in section 2 of the Act as follows:

"reserve" means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band.

There is no question that upon the evidence adduced, the salary, or property of the appellant, who was a status Indian, was received from the offices of the relevant school board which were located on Lot 4 indicated by the"X" on the plan. I am further satisfied that the tract of land was vested in Her Majesty at all relevant times. The more difficult task facing the appellant is to satisfy the Court that this Lot 4 was located on a" reserve" and to do that she must satisfy the Court that the lot was "set apart” by Her Majesty "for the use and benefit of a Band".

There is no direct or documentary evidence before me that Lots 1 and 4 were "set apart" under section 2 of the Act as was the case for Lot 11. P.C. 1956-120 makes it clear that this lot is specifically "set apart" and the document goes on to say that pursuant to the Indian Act, the Minister of Citizenship and Immigration “doth hereby set apart the lands hereafter described for the use and benefit of the Factory Island Band of Indians" and further, that the lot “is to be designated Factory Island Indian Reserve Number 1”.

The appellant argues that the Order is invalid, but there is nothing before me which would allow me to reach such a conclusion. The evidence of the witness called by the respondent made it clear that a“ reserve" could only be created by an Order in Council and that this was such an Order. However, even if l were able to conclude that the Order was invalid it would not avail the appellant here because its invalidity would not make Lot 4 a part of the reserve".

Since there is no direct oral or documentary evidence in support of the appellants position she is left to indirect evidence which she suggests can be drawn from the circumstances and documentary evidence presented. From this she concludes that from the beginning it was intended that all three lots be included in the " reserve". She points to the various documents and says that the reference to such phrases as "the use of the land for Indian reserve purposes, use of the lands for the purposes for which they were being acquired, the desirability of the Minister to establish and maintain a system of health and education on the lands for the Indians, the fact that the funds had been allotted in Vote 56 for such purposes, and the fact the Minister agreed with the Hudson's Bay Company to restrict the use of the lands, all point to the conclusion that the lands were all intended to be part of the‘ reserve'". Further she says that because all of the lots are registered in the Reserve General Ledger they must be part of the reserve".

The appellant maintains that in order to make the lands part of the reserve there need only be sums allocated, the lands must be purchased and the title must be registered in the Reserve General Ledger. She makes no reference to "setting apart for a named band" and argues that once the lands were transferred to Her Majesty and registered in the Reserve General Ledger they became part of the “reserve”. This position is obviously contrary to the evidence adduced by the respondent and contrary to the respondent's argument.

For the Court to accept the position of the appellant, it would have to completely disregard what I consider to be the clear meaning of the words in the definition of "reserve" as contained in the Indian Act or ascribe to an extension of the meaning of the words "set apart by Her Majesty for the use and benefit of the Band" to include the intention to do so, or to conclude that because the moneys may have been set aside by the government for an avowed purpose, that the government could not change its mind, or that circumstances could not intervene that might make its original purpose obsolete or undesirable.

The appellant has argued that to treat Lot 4 as otherwise than part of the "Reserve", would amount to a breach of promise to the Band and to the church and the Hudson's Bay Company, but even if that were true, that in itself would not amount to making done, that which was undone.

I am satisfied that the present status of the law on the interpretation of paragraph 87[1](b) requires that the liberal interpretation approach should be used but also that the section does not extend beyond the ordinary meaning of the words and expressions contained in the section and I am not prepared to adopt any notional extension of" reserves", or as to what may be considered to be done on reserves. It would only be by such means that the appellant could hope to succeed here.

I am satisfied that on the basis of all the evidence presented here and on the basis of any reasonable inferences I am entitled to draw from that evidence that Lot 4 was never set apart for the use and benefit of the Band and that the funds received by the appellant are not exempt from taxation under the Income Tax Act.

The appeals are therefore dismissed.

Appeals dismissed.