McRae v. R., [1998] 3 CTC 2283

Bonner T.C.J.:

This is an appeal from assessments of income tax for the Appellant’s 1991, 1992 and 1993 taxation years. The appeal is governed by the Informal Procedure. The assessments in issue were made on the basis that section 87 of the Indian Act [1] did not operate to exempt the Appellant from tax under section 5 of the Income Tax Act on his income from employment by Seaspan International Ltd. The Appellant is an Indian as defined by the Indian Act. At all relevant times he resided on a reserve. He contends that one third of his employment income is exempt primarily because it was paid in respect of time when he was standing by at his home on the reserve awaiting a call from his employer requesting that he report for duty.

Section 87 of the Indian Act provides in part:

(1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely,

(a) the interest of an Indian or a band in reserve lands or surrendered lands; and

(b) the personal property of an Indian or a band situated on a reserve.

(2) No Indian or band is subject to taxation in respect of the ownership, occupation, possession or use of any property mentioned in paragraph (1)(a) or (b) or is otherwise subject to taxation in respect of any such property.

Paragraph 81(1 )(a) of the Income Tax Act provides:

There shall not be included in computing the income of a taxpayer for a taxation year,

(a) an amount that is declared to be exempt from income tax by any other enactment of the Parliament of Canada, 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;

It was common ground that:

The appellant is a status Indian, within the meaning of the Indian Act.

The appellant resides, on the Kwaw-Kwaw-Apilt Reserve, a reserve within the meaning of the Indian Act, and did so during each of the taxation years the assessments in respect of which are the subject of this appeal.

In each of the taxation years in issue the appellant earned income resulting from his employment under the terms of a collective agreement between Seaspan International Ltd. and the International Union of Operating Engineers, Local 115.

The appellant received payment in respect of all of his employment income at his home on the reserve.

Seaspan is a corporation engaged in the business of marine transportation. Its offices are located in North Vancouver. It employed the Appellant as a member of the crew of its log barge, the Seaspan Rigger.

The Appellant’s work involved loading logs onto the barge at various points on the coast of northern British Columbia and Alaska and, on occasion, assisting with the unloading of the barge at delivery points in southern British Columbia. There was no suggestion that either Seaspan or its business was in any way connected with Indians or located on a reserve. Subject to an exception which will be discussed later the Appellant’s status as an Indian was not relevant to his employment.

The thrust of the Appellant’s case was that one third of his employment income was property situated on a reserve within the meaning of section 87 of the Indian Act because it was at his home located on a reserve that he earned salary while waiting for telephone calls from his employer notifying him that he was required to attend for work on the employer’s barge. To this “connecting factor” between employment income and reserve the Appellant adds firstly that Seaspan mailed his pay cheque to him at his home on the reserve and secondly that, during part of the three year period in issue, Seaspan was able to load logs in Alaskan waters only because the work was performed by Indians, namely, himself and his brother.

Although the Appellant was continuously employed during the period in issue the nature of his employment was such that he was actually engaged in the work which he was employed to do for relatively short periods of time. The crew of the Rigger, including the Appellant, was assigned to work exclusively on that barge. The primary task of the crew was to load the barge. The crew did not travel on the barge while it was being towed, whether loaded or empty. When loading was completed the Appellant and other members of the crew were flown home. The barge was designed for self-unloading. Two members of the six person crew were required to stand by for a call from Seaspan to assist if the self-unloading process did not proceed as planned. This obligation was assigned in rotation and thus the Appellant was on stand-by in respect of one unloading out of three. Otherwise the Appellant could expect that once the Rigger was loaded his services would not be required again until the barge had completed a round trip and it was once again necessary to meet it and to load it. A typical round trip took about six days.

The Appellant worked pursuant to collective agreements between Seaspan and the International Union of Operating Engineers. His basic work schedule as fixed by the agreements was four weeks on-duty and two weeks free and clear of duty. It was only during the on-duty period that the Appellant was required to respond to calls from Seaspan to travel to the place where the Rigger was to be loaded, to load it and to stand by for unloading.

The Appellant’s position was that during the four week on duty portion of the six week work cycle he was on call 24 hours a day seven days a week; that, when not engaged in loading or in travelling between home and places of loading, he was required to stand by to receive telephone calls from Seaspan summoning him to duty; that the place where he did stand by was his home on the reserve and that the portion of his annual salary attributable to the time spent at home was personal property situated on the reserve exempt under section 87.

The factual situation as portrayed by the Appellant greatly overstates the significance of his presence at home in the income earning process. Each of the two collective agreements in force during the taxation years in question provided:

Every effort will be made to notify the employees of calls to work to eliminate having to standby at home for indefinite periods.

Evidence given by Bernard Krueger, head loader on the Rigger, established that the effort called for by that clause was made and that the time which the Appellant was obliged to spend at home waiting for phone calls was very limited. The Seaspan office informed Mr. Krueger two or three trips in advance of the places to which the Rigger was to travel. Mr. Krueger promptly passed that information on to the rest of the crew. It was not difficult to estimate the duration of the voyages. On trips home after the Rigger had been loaded Mr. Krueger usually discussed with crew members the time when he expected to make the next telephone call to them in order to advise them of a flight departure time. His practice was to call crew members at either 8 a.m. or 6 p.m. at least twelve hours before the time fixed for departure to meet the Rigger.

The Appellant engaged in hobbies such as horse racing and other sideline activities which took him away from his home for substantial periods of time. As a result when Mr. Krueger attempted to contact the Appellant he frequently experienced difficulties in reaching him. It was only when Mr. Krueger was able to persuade the Appellant to buy a telephone answering machine that the problem was solved. Members of the crew of the Rigger were not expected to sit at home during the four-week period awaiting emergency calls to duty. There was a conflict in the evidence on this point. I prefer the testimony of Mr. Krueger to that of the Appellant and of the witness Roy Hall both of whom appeared to be less objective than Mr. Krueger.

No connection was established between any specific amount of employment income received by the Appelant and time spent by him at his home. The Appellant was, according to the collective agreements, entitled to a monthly salary and his theory is that he earned part of that salary while at home. The evidence of Roy Hall, a fellow worker of the Appellant who had assisted in the negotiation of the collective agreements, seems to have been tendered in support of this theory, but, on this point, the weight of Mr. Hall’s testimony is greatly diminished by the leading questions which were put to him. The collective agreements contain numerous provisions calling for time credits to the employee in respect of specific requests for stand-by, for time spent travelling, for call-outs during rest period and for premium pay. The agreements also require Seaspan to record “the number of hours an employee works, travels or lays over”. The precise relationship between the salary and provisions creating entitlement to payment based on hourly credits was not established. It seems that the salary served as a base or minimum and as a reference point for the calculation of overtime. The evidence does not permit any computation either of the time actually spent by the Appellant at home receiving or awaiting calls from Seaspan or of any specific amount of remuneration attached to that time.

Evidence was given that during part of the period in issue Seaspan was able to load barges in Alaskan waters only because the work of loading was performed by the Appellant and his brother. At the time, as a result of a labour dispute, Canadian workers were prohibited from doing work of the type in question in the United States. Native persons were exempted from the prohibition. The work done by the Appellant in Alaska was not performed on a reserve within the meaning of the Indian Act.

Assuming that the Appellant was paid some amount for time spent awaiting calls from Seaspan the analysis of the effect of section 87 of the Indian Act on the taxation of that income must start with the decision of the Supreme Court of Canada in Nowegijick v. R., [1983] 1 S.C.R. 29 (S.C.C.). That case stands for the proposition that income from employment is personal property for purposes of the exemption from taxation provided by the Indian Act. The decision also provides general guidelines to the interpretation of section 87 including those found in the following passage at page 41 of the reasons of Dickson J. speaking for the Court:

We must, I think, in these cases, have regard to substance and the plain and ordinary meaning of the language used, rather than to forensic dialectics. I do not think we should give any refined construction to the section. A person exempt from taxation in respect of any of this personal property would have difficulty in understanding why he should pay tax in respect of his wages. And I do not think it is a sufficient answer to say that the conceptualization of the Income Tax Act renders it so.

In Mitchell v. Sandy Bay Indian Band, [1990] 2 S.C.R. 85 (S.C.C.) La Forest J. discussed the purpose of the exemptions from taxation and distraint contained in sections 87 and 89 of the Indian Act. At page 130 he stated:

The exemptions from 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 if Indian affairs.

Later, on page 131, La Forest J. noted that the legislative purpose which underlies sections 87 and 89 was not to afford unlimited protection. He stated:

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.

In Williams v. /?., [1992] 1 S.C.R. 877 (S.C.C.) the Supreme Court of Canada had occasion to consider the situs of unemployment insurance benefits for purposes of the section 87 exemption. Gonthier J. reviewed the earlier decision of the Court in Mitchell and stated at page 887:

The purpose of the situs test in section 87 is to determine whether the Indian holds the property in question as part of the entitlement of an Indian qua Indian on the reserve. Where it is necessary to decide amongst various methods of fixing the location of the relevant property, such a method must be selected having regard to this purpose.

The Court rejected the view that the situs of property for purposes of section 87 was to be determined by conflict of laws principles which look exclusively to the residence of the debtor, and stated that the test for situs under the Indian Act must be constructed according to the purposes underlying that Act. At page 892 Gonthier J. stated:

The first step is to identify the various connecting factors which are potentially relevant. These factors should then be analyzed to determine what weight they should be given in identifying the location of the property, in light of three considerations: (1) the purpose of the exemption under the Indian Act; (2) the type of property in question; and (3) the nature of the taxation of that property. The question with regard to each connecting factor is therefore what weight should be given that factor in answering the question whether to tax that form of property in that manner would amount to an erosion of the entitlement of an Indian qua Indian on a reserve.

It should be noted that in this case the Appellant restricted his claim for exemption to one-third of his employment income despite the fact that all of his income from that source was paid by cheque mailed by Seaspan to him at his home on the reserve. Clearly the place to which the cheque is mailed was not and cannot be regarded as a connecting factor on which great weight can be placed. The arrangement for mailing pay cheques to an address on a reserve is one which can readily be manipulated for reasons unrelated to the purpose served by section 87.

Of much greater importance as a connecting factor is the place of performance of the duties of employment which gave rise to the Appellant’s entitlement to receive the payments which have been subjected to taxation under section 5 of the Income Tax Act. Here all or virtually all of such duties appear to have been performed off the reserve. The Appellant did of course receive telephone calls at home and he did respond to them. However the connection between time spent in the home receiving those calls and the receipt of employment income is, at best, tenuous. The calls can more aptly be described as calls to work than as calls in the course of work. I cannot accept the proposition that the selection of a home located on a reserve as a place for the receipt of work-related phone calls is, standing virtually alone, sufficient to identify any part of the income as situated on a reserve. The purposes which underlie section 87 are not, in my view, well served by the dissection of income received from a single source into tiny components and the assignment of a situs to each. In this regard I refer to the passage which I have quoted from in Nowegijick, supra. The Appellant’s personal status as an Indian, which enabled him to work in Alaskan waters, is unrelated to the point now in dispute, namely, the place where his employment earnings were situated. This case must be viewed as one in which the Appellant emerged from the reserve to earn income by working for an enterprise unrelated to Indian bands and to Indian lands. Seaspan’s offices, barges, business activities and clientele were all part of the ordinary commercial mainstream. In my view no part of the Appellant’s income from Seaspan is exempt under section 87. For the foregoing reasons, the appeal will be dismissed.

Appeal dismissed.