Hill v. R., [1999] 3 CTC 2073 (Informal Procedure)

Beaubier T . C.J.:

This appeal pursuant to the Informal Procedure was heard at Toronto, Ontario on April 29, 1999. The Appellant and Chief Wellington Staats, Chief of the Appellant’s tribe, the Six Nations of the Grand River at Oh- sweken, Ontario, testified.

Paragraphs I to 15 of the Reply to the Notice of Appeal read:

1. He admits that the Appellant invested $30,000.00 with the Royal Bank of Canada (the “Investment”) in February 1992.

2. He further admits that with respect to the Investment, no amount was deducted by the Appellant in computing income for the 1992 taxation year.

3. He further admits taht the Appellant withdrew an amount of $32,100.00 (the “Withdrawal”) from the Investment and that an amount of $9,630.00 was deducted from the Withdrawal on account of income taxes payable.

4. He further admits that the Appellant made no deduction in the computation of income for the 1993 taxation year with respect to the Investment.

5. He denies all other allegations of fact contained in the Appellant’s Notice of Appeal.

6. In computing income for the 1993 taxation year, the Appellant included in income the Withdrawal.

7. The Minister assessed the Appellant for the 1993 taxation year by Notice of assessment mailed on October 11, 1994, and in so assessing the Appellant for the 1993 taxation year, the Minister included the Withdrawal from the Investment in income.

8. In so assessing the Appellant, the Minister made the following assumptions of fact:

(a) the facts hereinbefore admitted;

(b) the principal place of business of the Royal Bank of Canada is not located on a reserve within the meaning of paragraph 87(1 )(b) of the Indian Act;

(c) during the 1993 taxation year, the Appellant withdrew $32,100.00.00 from the Investment of which an amount of $2,100.00 represented interest earned on the Investment (the “Earned Interest”);

(d) the Earned Interest from the Investment is not the personal property of an Indian situated on a reserve within the meaning of paragraph 87(1 )(b) of the Indian Act.

9. The Minister agrees that the Appellant did not deduct any portion of the Investment in computing his income for the 1992 taxation year, or any other year. As the amount of $32,100.00 was received by the Appellant in the 1993 taxation year, the Minister agrees that the Appellant be permitted to deduct the amount of the Investment, or $30,000.00 in commputing income for the 1993 taxation year.

B. Issues to be Decided

10. The issue is whether the Earned Interest from the Investment was properly included in the Appellant’s income for the 1993 taxation year.

C. Statutory Provisions, Grounds Relied on and Relief Sought

11. He relies on sections 3 and 4 and paragraphs 12(1)(c) and 81 (l)(a) of the Income Tax Act (the “Act”) as amended for the 1993 taxation year and paragraph 87(1 )(b) of the Indian Act.

12. He submits that the Earned Interest from the Investment should be included in computing the Appellant’s income for the 1993 taxation year in accordance with section 3 and paragraph 12(1)(c) of the Act.

13. He further submits that the Earned Interest from the Investment is not an amount exempt from any tax by any other enactment of Parliament within the meaning of paragraph 81 ( 1 )(a) of the Act as it was not received by the Appellant from a financial institution whose principal place of business is located on a reserve as defined by paragraph 87(1)(b) of the Indian Act.

14. He requests that the appeal in respect of the 1993 taxation year be allowed and referred back to the Minister for reconsideration and reassessment on the basis that the computation of income be reduced by the amount of $30,000.00 which amount represents the Investment.

15. He requests that the appeal in every other respect be dismissed.

[sic]

The Appellant is allowed his appeal in respect to the $30,000 described in paragraphs 9 and of the Reply.

With respect to the appeal as to the $2,100 earned interest, the Appellant’s deposit of $30,000 was in a branch of the Royal Bank of Canada, located on the Six Nations Reserve at Ohsweken. It was deposited there and was received by the Appellant from there. The Appellant is an Indian residing on the Six Nations Reserve at all material times. In 1993 he was a school principal at a school near the Reserve and also farmed and manufactured food on the Six Nations Reserve. Paragraphs 8(a) and (c) of the assumptions in the Reply are correct. Assumption 8(b) was not refuted; there is only a branch of the Royal Bank of Canada situated on the Six Nations Reserve.

The $2,100 interest on the $30,000 principal was from a 1 year term deposit with the bank. There is no evidence that the $30,000 principal was invested in a way that was connected to the Six Nations Reserve. Rather, it was mingled with the Royal Bank of Canada’s general funds and invested wherever it invests funds. Thus, the use of the $30,000 was similar to that to which the Bank Acceptances were put in Recalma v. R., [1998] 2 C.T.C. 403 (Fed. C.A.). In paragraphs 13 and 14 of that case, Linden, J.A., speaking for the Federal Court of Appeal, said:

13 Thus, in our view, taking a purposive approach, the investment income earned by these taxpayers cannot be said to be personal property “situated on a reserve” and, hence, is not exempt from income taxation.

14 To hold otherwise would open the door to wealthy Natives living on reserves across Canada to place their holdings into banks or other financial institutions situated on reserves and through these agencies invest in stocks, bonds and mortgages across Canada and the world without attracting any income tax on their profits. We cannot imagine that such a result was meant to be achieved by the drafters of section 87. The result may, of course, be otherwise in factual circumstances where funds invested directly or through banks on reserves are used exclusively or mainly for loans to Natives on reserves. When Natives, however worthy and committed to their traditions, choose to invest their funds in the general mainstream of the economy, they cannot shield themselves from tax merely by using a financial institution situated on the reserve to do so.

Leave to appeal Recalma to the Supreme Court of Canada was refused (1998), 236 N.R. 387 (note) (S.C.C.).

For the reasons in Recalma, the appeal in respect to the $2,100 interest is dismissed.

This appeal is referred to the Minister of National Revenue for reconsideration and reassessment in accordance with these reasons.

The Appellant had to come a distance of about 200 kilometres to prosecute his appeal and had extensive correspondence and adjournments while prosecuting the appeal and awaiting the outcome of Recalma. He is awarded $250.00 in costs on account of his out of pocket expenses relating to the appeal.

Appeal dismissed.