Strayer
J.A.:
This
appeal
involves
two
members
of
the
Nootka
Indian
Band
who
were
employed
at
a
pulp
mill
operated
by
the
Tahsis
Company
Ltd.,
later
known
as
Canadian
Pacific
Forest
Products
Ltd.,
now
known
as
Avenor
Inc.
(“the
Company”).
The
mill
was
operated
in
part
on
land
leased
from
the
Nootka
Band.
Both
appellants
claimed
exemption
from
income
tax
in
respect
of
their
employment
income,
on
the
basis
that
such
income
was
“the
personal
property
of
an
Indian
...
situated
on
a
reserve”
as
exempted
from
income
tax
by
paragraph
87(1)(b)
of
the
Indian
Act
as
applied
through
paragraph
81(1
)(a)
of
the
Income
Tax
Act.
The
Minister
assessed
such
income
as
taxable
and
the
Tax
Court
of
Canada
dismissed
their
appeals.
The
two
cases
were
argued
together
on
appeal
before
this
Court.
While
we
recognize
the
difficulties
faced
by
the
Tax
Court
in
trying
to
apply
the
various
factors
said
by
existing
cases
to
be
relevant
in
determining
the
situs
of
income
for
the
purpose
of
section
87,
we
have
concluded
that,
in
the
light
of
the
case
law
including
recent
jurisprudence,
the
income
in
question
here
should
be
treated
as
located
on
the
reserve.
It
is
necessary
to
consider
briefly
the
history
of
this
mill
in
relation
to
the
reserve.
It
was
the
Company
which
in
about
1959
approached
the
Indian
Agent
with
a
view
to
buying
or
leasing
the
reserve
for
the
purpose
of
establishing
a
pulp
mill.
The
Band
eventually
agreed
to
surrender
it
for
leasing
to
the
Company,
and
in
doing
so
requested
that
the
lease
provide
job
opportunities
for
Band
members
at
the
mill.
By
the
lease
negotiated
between
the
Crown
and
the
Company,
the
Company
agreed
to
give
preference
in
employment
to
Band
members
“in
its
operations
on
the
premises”.
Of
the
39
acres
of
the
reserve,
28.8
were
leased
to
the
Company.
Band
members
resided
adjacent
to
the
leased
property.
The
mill
operation
was
located
partly
on
the
28.8
acres
of
band
reserve
land
and
partly
on
488
acres
of
land
owned
by
the
Company.
The
mill
itself
was
situated
on
the
property
owned
by
the
Company,
but
leased
reserve
land
was
used
for
storing
fuel
and
woodchips
for
the
operation
of
the
mill.
Neither
of
the
appellants,
while
employed
by
the
Company,
actually
worked
on
that
portion
of
the
site
leased
from
the
Band.
However,
both
resided
on
the
reserve.
In
seeking
to
apply
the
recognized
factors
for
determining
the
situs
of
such
income,
we
have
concluded
that
the
learned
trial
judge
did
not,
as
a
matter
of
law,
give
sufficient
weight
in
the
circumstances
to
the
purpose
of
the
tax
exemption
under
section
87
of
the
Indian
Act,
namely,
to
preserve
the
entitlements
of
Indians
to
their
reserve
lands
and
to
ensure
that
the
use
of
their
property
on
their
reserve
lands
was
not
eroded
by
the
ability
of
governments
to
tax....2
Viewing
the
present
matter
broadly,
it
appears
that
the
following
inferences
may
be
drawn.
The
Company
sought
to
lease
this
land
because
it
thought
it
important
to
the
operation
of
a
pulp
mill
yet
to
be
built.
The
Band
agreed
to
surrender
the
reserve
for
leasing
purposes
on
the
understanding
that,
inter
alia,
the
lease
would
promote
the
employment
of
Band
members.
The
lease
so
provided.
These
particular
Band
members
were
subsequently
employed
by
the
Company
and
though
we
have
no
direct
evidence
that
their
employment
was
due
to
the
term
in
the
lease,
it
is
a
fair
inference
that
they
benefited
by
the
availability
of
employment
flowing
from
the
Company
obtaining
access
to
their
reserve.
A
difficult
issue
arises
from
the
fact
that
neither
of
these
appellants,
in
their
employment
with
the
Company,
actually
worked
on
the
leased
reserve
land.
However
the
parties
have
agreed
that
the
uses
made
by
the
Company
of
the
leased
reserve
land
were
“related
to
the
production
of
pulp”,
the
activity
in
connection
with
which
the
appellants
were
employed.
It
would
appear
to
us
to
be
too
arbitrary
to
deny
the
benefits
of
section
87
to
those
whom
the
Company
assigned
to
one
area
of
the
pulp
mill’s
operation
as
opposed
to
those
assigned
to
another
contiguous
area.
It
must
be
inferred
that
the
use
of
reserve
land
was
integral
to
the
operation
of
the
pulp
mill
or
the
Company
would
not
have
leased
it
prior
to
establishing
its
operation.
From
the
point
of
view
of
Band
members,
this
surrender
of
the
reserve
was
in
part
for
the
procurement
of
access
to
employment
that
would
flow
from
having
the
pulp
mill
operation
established
on,
and
contiguous
to,
their
land.
Thus
we
conclude
that
this
employment
was
directly
related
to
the
realization
by
the
Band
and
its
members
of
their
entitlements
to
the
reserve
land
and,
in
accordance
with
the
purpose
of
the
tax
exemption
in
section
87,
the
government
should
not
be
able
through
income
taxation
to
erode
income
from
such
use,
direct
or
indirect,
of
their
land
as
is
found
in
this
case.
The
appeal
will
therefore
be
allowed
with
costs
and
these
matters
will
be
referred
back
to
the
Minister
for
reassessment
in
accordance
with
these
reasons.
Appeals
dismissed.
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