Constant Charleson v. Minister of National Revenue, [1991] 2 CTC 2236, 91 DTC 844

Rip, T.C.J.:—The appellant, Constant Charleson ("Charleson") has appealed income tax assessments for 1982, 1983, 1984 and 1985 on the basis that in those years he was exempt from tax since he was a registered Indian pursuant to the provisions of the Indian Act, R.S.C. 1970, c. 1-6, 1980-81-82-83, c. 47, s. 25 (now R.S.C. 1989 c. I-5), resided on an Indian reserve and was engaged in a commercial fishing business situated on the reserve.

Subsections 87(1) and (2) of the Indian Act provide in part that:

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)

(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.

Paragraph 81(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") states that an amount that another Act of the Canadian Parliament declares to be exempt from income tax shall not be included in computing the income of a taxpayer for a taxation year.

The Minister of National Revenue, the respondent, alleges that the appellant did not reside on a reserve and in any event, the appellant's income from his fishing business was not personal property situated on a reserve within the meaning of subsection 87(1) of the Indian Act.

Charleson is a person registered as an Indian under the Indian Act. He is a member of the Hesquiat band which lives on the west coast of Vancouver Island. About 80 people live on the reserve located at the band village of Hot Spring Cove near Tofino, British Columbia. There are no roads leading to the village, entry is by air or water. Children attend high school away from the village during the fall, winter and spring and return to the reserve in the summer. There is a one-room elementary school in the village.

The appellant is presently in a common-law relationship and has two children from this union; he has six children from a previous marriage and one child from another relationship. All children are registered Indians and all are supported by Charleson.

During the years in appeal and in previous years, Charleson testified, he and at least three of his children lived at his brother's house in Hot Spring Cove from approximately June 1 each year to the Labour Day weekend. A separate room in the house was set aside for him for use as an office, amongst other things. Charleson had owned a home in Hot Spring Cove until 1981 or 1982, which he sold to another brother. During the rest of each year in appeal, and for each of the past 17 years, he lived in Port Alberni. He had owned a house in Port Alberni which he had to give up and during the years in appeal he rented a house. The children would return to Port Alberni during the Labour Day weekend to attend school; Charleson would return to Port Alberni in October or November depending on fishing conditions. Charleson testified he lived in Port Alberni for most of the year because it had modern facilities for the children, in particular hospitals, schools and recreational facilities, which were not available in Hot Spring Cove or Tofino. When leaving for Hot Spring Cove for the summer months Charleson would lock the Port Alberni house, taking only the family's clothing to the reserve. Valuables were left in Port Alberni.

The appellant's income is from fishing. During the years in appeal he chartered three different boats, one each year, from Canadian Fishing Company ('"Company") of Vancouver. As his production increased each year, the Company would grant him a larger and better boat for the next year.

Once the boat was chartered the appellant would choose his crew of six; two of his crew were members of the Hesquiat band and the others were from Port Alberni and Sook, B.C. He would "pick up" a boat at the beginning of each fishing season in Steveston, B.C. The crew would take the boat up to Hot Spring Cove to prepare the fishing nets and then proceed south to fish.

Under the arrangement the Company had with Charleson, the appellant was to sell all his catch to the Company. The Company has, and had, packers (vessels) on the fishing grounds and the sales of fish were and are made on the open water. On delivery of the fish to the Company the poundage and species are recorded in duplicate; and the appellant retains a copy of the particulars of sale in a book which he retains on his person throughout the fishing season. No money is paid to Charleson at the time of the sale.

Charleson testified he kept two books pertaining to the business at his office in Hot Spring Cove. However, the substantial part of his business records were maintained in Port Alberni.

At Charleson's request the Company would advance him funds which he, in turn, would use to make advances to the crew. These advances would be made about two or three times a month during the fishing season. The Company had Charleson keep records of the advances received and made to each of the crew. At the end of each year the amounts advanced and the sales would be reconciled, the shares in the catch allocated and final settlement would be made to Charleson and the crew. The catch was divided into 11 shares: two and one half shares belonged to the boat, that is, the Company; seven shares belonged to the crew, including one crew share to Charleson, and one and one half shares belonged to the owner of the net, that is, Charleson. The reconciliation of the amounts was made by the Company's accountant.

The decision to repair the boat was that of the Company. The hiring and firing of the crew was determined by Charleson. Charleson would also decide where and when to fish during the season as well as for what species to fish. Permission to fish in any given area was granted by the Department of Fisheries and Oceans. When a fishing area was declared open, the appellant would moor at the area for one or two days to fish. Once an area was fished, the boat would return to a nearby harbour to wait for announcement by the Department of the next area to open. Charleson stated that in the years under appeal 25 to 36 days were open for fishing each year.

During the course of the fishing season Charleson would fish along the west coast of British Columbia and along Vancouver Island between the two borders with the United States. He would fish from June to the end of October, or early November if salmon was available.

The chartered boat was a union boat; the crew and Charleson were and are members of the Native Brotherhood of British Columbia. The union dues are deducted from their shares in the catch and remitted to the union by the Company.

Charleson acquired one net, an inside net, to fish from his father for $25,000; he acquired another net, a west coast net, for $40,000. The Company financed the upkeep of the nets; the Company would pay for the webbing and would deduct the cost from Charleson's share of the catch. Charleson ordered all his fishing equipment from the Company and the cost would be deducted from Charleson's share. His expenses during the season, for fuel and groceries for example, would also be borne by the Company, subject to repayment at the end of the season from his share of the catch.

A licence is required to fish commercially for salmon. Charleson had no licence. However the Company did hold licences which were attached to each boat and it was such a licence that permitted Charleson to fish commercially for salmon. He also fished for cod and herring. The appellant testified that an A licence for salmon permits him to fish any species of salmon throughout the season and for other fish when not salmon fishing. He estimated the value of the A licence for a 50-foot boat to be $500,000. He added the government no longer issues such licences and very few are for sale. Charleson was of the view that he would require over $1,000,000 to purchase a license and own his own boat.

When he was not fishing during the fishing season because, for example, no area was open and he was close to Hot Spring Cove, Charleson would return to the reserve, which he said he considered "home". He estimated he spent about 30 to 40 days at Hot Spring Cove from June to November in each of 1982 to 1985. He would stay on the reserve for two to seven days at the home of one of his brothers until there was an "opening" announced for fishing. However, when he would be away from Hot Spring Cove, for example, when he fished in the North, he would spend the time at some harbour or on the boat waiting for an "opening".

The parties agree Charleson was not an employee of the Company and carried on the business of a commercial fisherman on his own account.

Section 87 of the Indian Act provides the personal property of an Indian situated on a reserve is exempt from taxation and no Indian is subject to taxation in respect of any such property.

The issue before the Court is whether the respondent has assessed Char- leson tax in respect of personal property situated on a reserve. Evidence was led to determine if Charleson resided on a reserve during the years in appeal and that the fishing business itself was situated on a reserve during those years.

Appellant's counsel advised the Court he has been unable to find any reported case on point but referred the Court to four cases from which he has gleaned general principles which may be applied to determine the issue at bar.

In Nowegijick v. The Queen, [1983] 1 S.C.R. 29; [1983] C.T.C. 20; 83 D.T.C. 5041 at 24 (D.T.C. 5044; S.C.R. 36) Dickson, J. (as he then was) discussed the construction of section 87 of the Indian Act and said that Indians are citizens and in affairs of life not governed by treaties or the Indian Act, they are no different than other citizens of Canada subject to all the responsibilities, including payment of taxes. However, he stated, it seemed to him:

. . . 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 reasonablybe construed to confer tax exemption that construction, in my view, is to be favoured over a more technical construction which might be available to deny exemption . . .

Thus, says counsel, the first case is authority for the proposition that when a provision is capable of two possible interpretations, the interpretation favouring the Indian is preferred.

The second case supports the principle that under section 87 of the Indian Act, it is the property, not the Indian, that is required to be situated on the reserve: Greyeyes v. The Queen, [1978] C.T.C. 91; 78 D.T.C. 6043 at 93 (D.T.C. 6045). Therefore it would appear I need not find Charleson was resident on a reserve during the years in appeal.

In Metlakalta Ferry Service Ltd. v. B.C. (1987), 12 B.C.L.R. (2d) 308, the appellant’s shareholders were all members of an Indian band. The appellant purchased a ferry which it leased to the band to transport band members from their reserve to the mainland. The ferry at all times remained in coastal water. The appellant paid no sales tax on the ferry and no tax on the lease payments. The appellant appealed when the Government of British Columbia assessed tax under the Social Service Tax Act on the lease payments.

The British Columbia Court of Appeal held the lease and debt owing to it were intangible personal property capable of falling under section 87 of the Indian Act. The situs of the band's lease interest was the residence of the debtor-lessee, or the band, namely, the reserve. The "property" in section 87, applied to the facts, could be taken as referring to the band's interest in the lease.

With respect to the appeal at bar, the appellant says Metlakalta Ferry Service, supra, is authority for the proposition that income from a business situated on a reserve is personal property that is also situated on a reserve.

Counsel submits a notional location of the business is required when the business is carried on from a boat. He cites Leighton v. British Columbia (1989), 35 B.C.L.R. (2d) 216 for the proposition that where income is located depends on where the business is located. A boat is not an acceptable situs of a business, counsel declares, because the situs would move as the boat moves. In Leighton, supra, at page 220, Lambert, J.A. stated: “The word 'situated' does not mean that the property must be permanently on the reserve: see Brown v. B.C., 20 B.C.L.R. 64, [1980] 3 W.W.R. 360, 107 D.L.R. (3d) 705 (C.A.). But 'situated on' means more than merely 'on'."

Counsel for the respondent submitted that to assist in determining the location of a business an analogy may be made to an employer-employee relationship. She referred the Court to her client's Interpretation Bulletin IT-62, dated August 18, 1972 whichstates that business income is normally allocable to the permanent establishment; the term "permanent establishment” is used commonly in tax treaties. [1] She cited Dickson, J.’s reference in Nowegijick, supra, to the reasons for judgment of Thurlow, A.C.J. in The Queen v. National Indian Brotherhood, [1978] C.T.C. 680; 78 D.T.C. 6488 where, at page 684 (D.T.C. 6491), he wrote:

I have already indicated that it is my view that the exemption provided for by subsection 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.

In respondent's counsel's view the appellant's business is carried on on water and its situs may indeed be on water. The right of ownership in the business, the incorporeal personal right owned by Charleson, is where the business itself is situated, she says. A second test, she submits, is where a business may be in more than one place, its situs is where its head office is to be found. The term "head office", she submits, is analogous to “principal establishment". She suggests the head office is where the books and records of the business are kept.

Counsel also referred the Court to Leighton, supra, where, at pages 220-21, Anderson, J.A. applied the reasons of Macfarlane, J. who dealt with the circumstances in which an automobile may be said to be situated on a reserve in Danes v. B.C., 61 B.C.L.R. 257 at page 263:

I do not think that property is without a situs just because it is mobile. From the point of view of the Indian owner of a motor vehicle it would be reasonable to say that the situs of the vehicle would be at his residence, which is the place where the vehicle is kept when not in use, and to which, habitually, it returns.

Mr. Justice Anderson added:

In that passage, Mr. Justice Macfarlane linked the situs of property with the residence of an individual. For the purposes of determining whether property is “situated on a reserve", the pattern of use and safekeeping of the property must be examined to establish its paramount location. If the location is on a reserve then the property itself is "situated on a reserve".

So I do not consider that either tangible personal property orits Indian owner can be taxed with respect to the use of the property off the reserve if the paramount location of the property remains on the reserve.

In his reasons in Nowegijick, supra, Dickson, J. appears to have contemplated that the term "personal property" in section 87 of the Indian Act includes any gain or profit from capital or labour: see Bachrach v. Nelson (1932), 182 N.E. 909 cited at page 914. Income earned from a business is a gain from use of capital in the business. The income earned by the appellant from his fishing business is "personal property" within the meaning of section 87.

The word "business" is defined by the Shorter Oxford English Dictionary on Historical Principles as ”. . . Trade, commercial transactions or engagements . . . A commercial enterprise as a going concern . . .". The word "business" is an abstract noun. To determine where a business is situated one must consider, amongst other things, where it is carried on, where decisions affecting the business are made ana where its books and records are kept. For purposes of the Indian Act the right of ownership of, or the interest in, the business and the right to receive income from the business are kinds of personal property that, if owned by an Indian, are exempt from tax if they are situated on a reserve.

Except for the nets, the principal tools of the trade carried on by Charleson were owned by the Company. The Company owned the boat and license ; the detailed books and records were kept at its offices in Vancouver. Before the fishing seasons began the crew "picked up" the boat at Steveston where it was first stocked for the season. During the off-season the boats were at the Company's docks at Vancouver.

The Company sent out packers to purchase the fish from Charleson and other fishermen. The sales by Charleson to the Company were on open water. The calculation of the fishing shares was done by the Company.

No contract with respect to the business was transacted or closed on the reserve at Hot Spring Cove. The only work performed on the reserve was the preparation of netting for the fishing season. The only books and records of the business on the reserve appears to have been there when Charleson was at the reserve and appear to be those usually carried by Charleson on his person while on the boat.

The Indian Act defines a "reserve" to mean "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 the band . . . includes designated lands”. "Designated lands” means “a tract of land or any interest therein the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set aside as a reserve has, otherwise than absolutely, released or surrendered its rights or interests. . .”.

Charleson did not carry on his business on land; the very nature of the business demands that it be exercised on water and indeed that is where it was carried out. There was no suggestion in the evidence that the waters fished by Charleson are considered traditionally or historically part of the community of the native people so that the waters may constitute a real and actual extension of the reserve: see National Indian Brotherhood, supra, at page 684 (D.T.C. 6491).

The evidence indicates quite clearly that no money passed on the reserve between the Company and Charleson. Further the Company was indebted to Charleson for the proceeds of sale of the fish, less adjustments for supplies and advances.

For the purposes of the appeal at bar I need not determine where the appellant's fishing business was located and the situs of the income from that business. I must find if the appellant's right of ownership of the business was located on a reserve or if the business was carried on the reserve.

A simple debt, being a personal right due from the debtor, is situated where the debtor resides: McLeod v. Minister of Customs and Excise, [1926] S.C.R. 457. The Company's residence is at its principal place of business, which is not the reserve at Hot Spring Cove. However, where a debtor carried on business in more than one jurisdiction, the parties may provide where the debt is to be payable and in the absence of such a provision the debt will be situated where, in the ordinary course of business, it would be paid. There is no evidence that any payment was to have been made on the reserve; on the contrary the evidence indicates payment was made at the Company's office outside the reserve, unlike the facts in Nowegijick, supra, where wages were paid by a corporation resident on a reserve to an Indian residing on a reserve but who worked off the reserve for the company. The residence of the debtor corporation determined the situs of the contract between debtor corporation and the creditor-employee since it was at the debtor's residence where payment of the debt could be enforced. See also National Indian Brotherhood v. The Queen, supra.

On the facts of the appeal at bar the business was not carried on the reserve. The only customer of the appellant, the Company, never entered the reserve at Hot Spring Cove. All business transactions between the appellant and the Company took place off the reserve. The appellant's right to income was independent of anything to do with the reserve.

Having regard to the substance and the plain ordinary meaning of the language used in section 87 of the Indian Act it is my view that on the facts of this case where a registered Indian contracts with a non-resident of a reserve for sale of product obtained off the reserve, he is not exempt from income tax on income earned from the sale of the product since the income is not personal property situated on a reserve. The appellant's right of ownership of the business of selling the product similarly is not situated on a reserve. Any books and records of the business on the reserve were there only incidentally. The business was dependant upon the boat and license, both the property of the Company. Although there is no evidence as to the situs of the agreement executed between Charleson and the Company for the lease of the boat and use of the license, it is reasonable to infer they were retained by the Company at its office and by the appellant at Port Alberni since that it is where he kept most of his papers during the year.

Section 87 of the Indian Act precludes the fisc from taxing an Indian on personal property situated on a reserve. The Indian is not subject to taxation in respect of the ownership, occupation, possession or use of personal property situated on a reserve. Here, there is no personal property in issue, whether it be the right of ownership of a business or a right to income, which is situated on a reserve.

The appeals are dismissed.

Appeals dismissed.