Citation: 2011 TCC 516
Date: 20111108
Docket: 2007-1402(IT)I
BETWEEN:
BRUCE MARCINYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2007-1409(IT)I
AND BETWEEN:
SHEILA MARCINYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2007-2221(IT)I
AND BETWEEN:
MARTHA MAWAKEESIC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rowe D.J.
[1]
Upon consent of counsel for the Respondent
and of each Appellant, these appeals were heard on common evidence. The Appellants
Martha Mawakeesic (“Mawakeesic”) and Sheila Marcinyshyn (“Marcinyshyn”) advised
that the Appellant Bruce Marcinyshyn (“Bruce”) was authorized to act as their
agent.
[2]
The issue in the appeal of
Marcinyshyn is whether the employment income earned by her from Native Leasing
Services (“NLS”) in each of the taxation years 2002 to 2005, inclusive, was the
personal property of an Indian situated on a reserve and whether the Minister
of National Revenue (the “Minister”) correctly included amounts received by
Marcinyshyn from NLS in determining her adjusted income for the purpose of
determining her eligibility for the Canada Child Tax Benefit (CCTB) for the
2003 taxation year. Marcinyshyn is a member of the Peguis First Nation, Peguis, Manitoba.
[3]
The issue in the appeal of
Mawakeesic is whether the employment income earned by her from NLS in each of
the taxation years 2003 to 2006, inclusive, was the personal property of an
Indian situated on a reserve and whether the Minister correctly included
amounts received from NLS in determining her adjusted income for the purpose of
determining her eligibility for the Goods and Services Tax (GST) tax credit for
the 2003, 2004 and 2005 taxation years. Mawakeesic is a member of the Sandy
Lake First Nation, Sandy Lake, Ontario.
[4]
The issue in the appeal of Bruce
is whether he is entitled to deduct the personal credit for married status
pursuant to paragraph 118(1)(a) of the Income Tax Act for the 2003 and
2004 taxation years on the basis the employment income received by his spouse –
Marcinyshyn – during those years was the personal property of an Indian
situated on a reserve. Bruce acknowledged that his appeal would follow the
result in the appeal of Marcinyshyn.
[5]
It is not in dispute that the head
offices of both O.I. Employee Leasing Inc. (“O.I.”) and NLS were located on the
Six Nations of the Grand River Reserve (“Six Nations Reserve”) and that NLS is
a sole proprietorship – owned and operated by Roger Obonsawin – that leased
employees to native organizations located off-reserve with the intent they
could claim a tax exemption pursuant to section 87 of the Indian Act, R.S.C. 1985, c. I-5, as amended.
[6]
On his own behalf and as agent for
Marcinyshyn and Mawakeesic, Bruce advised that they were content to proceed on
the basis that no oral evidence would be presented and that each of them was
willing to rely on the material contained in the binder filed as Exhibit A-1, tabs
1 to 25, inclusive, in support of their request that each of their appeals be
allowed. Reference hereafter to a tab means the document(s) are within said
exhibit. Included in said exhibit are various documents pertaining to the
employment of both Marcinyshyn and Mawakeesic, including an employment contract
dated April 16, 2004. At other tabs, the Appellants included other
material including case reports, extracts from the Canada Revenue (as it then
was) website and information regarding the Fetal Alcohol Syndrome Disorder program
(“FASD”) at Anishnawbe Mushkiki Inc (“AMI”).
[7]
Counsel for the Respondent called
Bernice Dubec (“Dubec”) to the stand. Dubec testified she is a status Indian
and resides in Kenora, Ontario. She was the Executive Director of AMI from January
2000 to August 2010 and had been placed in that position as an employee of O.I..
AMI was incorporated on March 3, 2000 as a non-profit corporation and provides
services to people of Aboriginal ancestry in accordance with the objects set
forth in the Letters Patent, a copy of which was filed as Exhibit R-1. The
objects are stated in paragraph 4 of the Letters Patent as follows:
(a)
establishment of a medical centre and clinic in the Thunder Bay area to
provide people of Aboriginal ancestry with primary health care;
(b)
establishment of a health counselling program;
(c)
promotion of health care and preventative
medicine;
(d)
creation and distribution of educational
materials relating to health care;
(e)
enhancing availability of culturally appropriate
translation, medical interpretation and resources;
(f)
encouraging Aboriginal people to reclaim
knowledge and understanding of traditional teachings;
(g)
increasing support mechanisms to provide
necessary resources, advocacy, and access to traditional healing;
(h)
enhancing collaboration and collective
initiatives between agencies and communities;
(i)
increase access to traditional Elders, medicines
and ceremonies; and
(j)
such other charitable programs in the areas of
Aboriginal health care as the Directors deem advisable.
[8]
Dubec testified that from its
headquarters at Royston Court in Thunder Bay, AMI provides services to Aboriginal people whether
status Indians, non-status, Métis or other ancestry. On occasion, services are
provided to a family unit that may be blended in the sense it includes
non-native members. The area covered by the AMI mandate is the District of
Thunder Bay and even though the resources were limited, it delivered service to
22 population centres, including First Nation communities, small towns and
villages. Dubec stated the aim of the organization was to utilize traditional
healing methods to deal with health problems and to promote health care and a
healthy lifestyle. AMI employed physicians and a chiropodist – part-time – and
a nurse practitioner, nutritionist, diabetes educator – all full-time – and
retained the services of consultants – including surgeons – as required. Dubec
stated Mawakeesic and Marcinyshyn both worked for AMI. Mawakeesic worked as a
Counsellor in the FASD program which included instruction in parenting skills
and nutrition. AMI offered pre-natal and post-natal services. Dubec estimated
that 80% of the work was performed at the Royston
Court office, although some home visits
were done within the city of Thunder Bay. About 10% of the total workload was devoted to
workshops, seminars and classes and most of the remaining balance was provided
to the residents on Fort William First Nation (“Reserve”), located 15
kilometres from the AMI office. Marcinyshyn was employed initially as a Child
Care Worker and then worked in the FASD program where she performed
substantially the same tasks as Mawakeesic.
[9]
In cross-examination by Bruce,
Dubec stated that most workers at AMI were employees of O.I. and that –
initially – a version of AMI had been located on the Reserve and received its
funding from an Aboriginal organization. The employment income of workers was
exempt from income tax but the structure was modified through the issuance of
Letters Patent whereby it became a self-governing organization funded by the Province of Ontario. Dubec
stated there was no space on the Reserve to construct an adequate facility so
AMI purchased the property on Royston
Court to use as its headquarters and was
able to expand the nature and scope of its programs in accordance with the
objects of the corporation.
[10]
With respect to the appeal of
Marcinyshyn, the assumptions of fact – stated at paragraphs 18(b) to 18(e),
inclusive, of the Reply to the Notice of Appeal (“Reply”) are:
…
b) The
appellant is an Indian as defined in the Indian Act;
c)
NLS had a head office on the Six Nations;
d)
The duties of employment, the place of performance and the services
provided by the appellant were off-reserve; and
e)
The Appellant did not live on a reserve.
[11]
With respect to the appeal of
Mawakeesic, the relevant assumptions of fact are stated at paragraphs 23(b) to
23(e), inclusive, and paragraphs 24(b) to 24 (d), inclusive, of the Reply.
…
b) The appellant is an Indian as defined in the
Indian Act;
c)
NLS had a head office on the Six Nations;
d)
The duties of employment, the place of
performance and the services provided by the appellant were off-reserve; and
e)
The appellant did not live on a reserve.
…
b)
the appellant worked directly for Anishnawbe Mushkiki during the 2006
taxation year;
c)
the appellant claimed $47,437 in income from Anishnawbe Mushkiki; and
d)
Anishnawabe Mushkiki is not located on a reserve.
[12]
Bruce submitted that it was
apparent Marcinyshyn had entered into a contract dated April 1, 2002 – tab 1 –
with NLS on the basis that any payment for her employment would be made from
the NLS office located at Six Nations Reserve. Her name at that time was Sheila
Blue. It was understood between the parties that her income would be exempt
from income tax. The T4 slips issued by NLS – tab 7 – for the relevant years
disclosed that no income tax had been deducted from her salary. Bruce stated
that since payment for the employment had been made from an employer situated
on a Reserve that the income was exempt. Bruce submitted that two recent
decisions by the Supreme Court of Canada had transformed the application of
earlier decisions to the point where the location of the employer – who owed a
debt to Marcinyshyn and Mawakeesic for having provided their services during
each pay period – was paramount and determinative of the issue of their right
to an exemption from tax from employment income.
[13]
Counsel for the Respondent
submitted no evidence had been adduced on behalf of any Appellant to
demonstrate that the assessments issued by the Minister were incorrect. Counsel
submitted the jurisprudence relied on by Bruce did not alter the
well-established body of jurisprudence concerning the tax exemption provided
under section 87 of the Indian Act. It was apparent the employment of
both Mawakeesic and Marcinyshyn was off-reserve and that less than 10% of all
services provided by AMI were to residents of the Reserve and that the AMI
mandate was to provide services to all persons of Aboriginal ancestry and – on
occasion – also to those members of a family unit who were non-native.
[14]
Relevant
Legislation
Property exempt from taxation
87. (1)
Notwithstanding any other Act of Parliament or any Act of the legislature of a
province, but subject to section 83 and section 5 of the First Nations
Fiscal and Statistical Management Act, the following property is exempt
from taxation:
…
(b) the personal property of an Indian or a band situated
on a reserve.
81. (1)
Amounts not included in income -- There
shall not be included in computing the income of a taxpayer for a taxation year,
(a) statutory
exemptions [including Indians] -- an amount that is declared to be exempt from income
tax by any other enactment of Parliament, 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;
[15]
The Supreme Court of
Canada in R. v. Nowegijick, [1983] 1 S.C.R. 29, decided that
property within the meaning of paragraph 87(1)(b) of the Indian Act included
income. This decision gave rise to the situs test. At page 5 – in part –
Dickson J. stated:
One point might have given rise to argument. Was the fact
that the services were performed off the reserve relevant to situs? The Crown
conceded in argument, correctly in my view, that the situs of the salary which
Mr. Nowegijick received was sited on the reserve because it was there that the
residence or place of the debtor, the Gull Bay Development Corporation, was to
be found and it was there the wages were payable.
[16]
In Williams v. Canada, [1992] 1. S.C.R. 877, the Supreme Court of
Canada established a series of connecting factors to be utilized when
determining the situs of personal property. As referred to by counsel for the Appellants
in their submissions, that case concerned an appellant Indian who received
regular unemployment insurance benefits as a result of working with a logging
company and for his Band in a specially-funded project. In both cases, the work
was performed on the reserve. At paragraphs 33 to 38, inclusive of the judgment
of Gonthier J. – delivered for the Court – he stated:
33 Because the transaction by which a
taxpayer receives unemployment insurance benefits is not a physical object, the
method by which one might fix its situs is not immediately apparent. In one
sense, the difficulty is that the transaction has no situs. However, in another
sense, the problem is that it has too many. There is the situs of the debtor,
the situs of the creditor, the situs where the payment is made, the situs of
the employment which created the qualification for the receipt of income, the
situs where the payment will be used, and no doubt others. The task is then to
identify which of these locations is the relevant one, or which combination of
these factors controls the location of the transaction.
34 The appellant suggests that in
deciding the situs of the receipt of income, a court ought to balance all of
the relevant "connecting factors" on a case by case basis. Such an
approach would have the advantage of flexibility, but it would have to be
applied carefully in order to avoid several potential [page892] pitfalls. It is
desirable, when construing exemptions from taxation, to develop criteria which
are predictable in their application, so that the taxpayers involved may plan
their affairs appropriately. This is also important as the same criteria govern
an exemption from seizure.
35 Furthermore, it would be dangerous
to balance connecting factors in an abstract manner, divorced from the purpose
of the exemption under the Indian Act. A connecting factor is only relevant in
so much as it identifies the location of the property in question for the
purposes of the Indian Act. In particular categories of cases, therefore, one
connecting factor may have much more weight than another. It would be easy in
balancing connecting factors on a case by case basis to lose sight of this.
36 However, an overly rigid test which
identified one or two factors as having controlling force has its own potential
pitfalls. Such a test would be open to manipulation and abuse, and in focusing
on too few factors could miss the purposes of the exemption in the Indian Act
as easily as a test which indiscriminately focuses on too many.
37 The approach which best reflects
these concerns is one which analyzes the matter in terms of categories of
property and types of taxation. For instance, connecting factors may have
different relevance with regard to unemployment insurance benefits than in
respect of employment income, or pension benefits. 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 [page893] would amount to the erosion of the entitlement of the
Indian qua Indian on a reserve.
38 This approach preserves the
flexibility of the case by case approach, but within a framework which properly
identifies the weight which is to be placed on various connecting factors. Of
course, the weight to be given various connecting factors cannot be determined
precisely. However, this approach has the advantage that it preserves the
ability to deal appropriately with future cases which present considerations
not previously apparent.
[17]
At paragraphs 55 and
56, Mr. Justice Gonthier continued:
55 Furthermore,
as can be seen from our discussion of the test for the situs of unemployment
insurance benefits, the creation of a test for the location of intangible
property under the Indian Act is a complex endeavour. In the context of
unemployment insurance we were able to focus on certain features of the scheme
and its taxation implications in order to establish one factor as having
particular importance. It is not clear whether this would be possible in the
context of employment income, or what features of employment income and its
taxation should be examined to that end.
56 Therefore, for the purposes of the
present appeal, we merely note that the employment of the appellant by which he
qualified for unemployment insurance benefits was clearly located on the
reserve, no matter what the proper test for the situs of employment income is
determined to be. Because the qualifying employment was located on the reserve,
so too were the benefits subsequently received. The question of the relevance
of the residence of the recipient of the benefits at the time of receipt does
not arise in this case since it was also on the reserve.
[18]
The judgment – at
paragraphs 61 to 62, inclusive – concluded as follows:
61 Determining
the situs of intangible personal property requires a court to evaluate various
connecting factors which tie the property to one location or another. In the
context of the exemption [page900] from taxation in the Indian Act, there are
three important considerations: the purpose of the exemption; the character of
the property in question; and the incidence of taxation upon that property.
Given the purpose of the exemption, the ultimate question is to what extent
each factor is relevant in determining whether to tax the particular kind of
property in a particular manner would erode the entitlement of an Indian qua
Indian to personal property on the reserve.
62 With regard to the unemployment
insurance benefits received by the appellant, a particularly important factor
is the location of the employment which gave rise to the qualification for the
benefits. In this case, the location of the qualifying employment was on the
reserve, therefore the benefits received by the appellant were also located on
the reserve. The question of the relevance of the residence of the recipient of
the benefits at the time of receipt does not arise in this case.
[19]
Recently, the Supreme Court of
Canada decided two cases, both involving the question
of whether interest income paid to a status Indian was situate on a reserve and
therefore exempt from taxation. Bastien Estate v. Canada, 2011 SCC 38 (Bastien)
was heard together with Dubé v. Canada, 2011 SCC 39 (Dubé).
The facts, proceedings and issue were set out in the reasons of Cromwell J.
at paragraphs 5 to 10, inclusive as follows:
II. Facts,
Proceedings and Issue
1.
Facts
…
[5] The late Rolland Bastien was a status Indian and belonged
to the Huron-Wendat Nation. He was born and died on the Wendake Reserve near Quebec City. His wife and
children who succeed him are also Huron and live on the reserve. From 1970
until 1997 when he sold the business to his children, Mr. Bastien operated a
moccasin manufacturing business on the Wendake Reserve: Les Industries Bastien
enr. He invested some of the income from the operation and sale of his
business in term deposits with two caisses populaires situated on Indian
reserves, the Caisse populaire Desjardins du Village Huron (the “Caisse”)
situated on the Wendake Reserve and the Caisse populaire Desjardins de
Pointe-Bleue situated on the Mashteuiatsh Reserve. Only the income from the
investments with the Caisse on the Wendake Reserve is in issue on this appeal.
The Caisse has since its founding in 1965 had its head office, its only place
of business and its sole fixed asset on the reserve (partial agreed statement
of facts, A.R., vol. II, at p. 200).
[6] In 2001, Mr. Bastien held certificates of deposit at the
Caisse and these investments paid interest that was deposited in a transaction
savings account at the Caisse. Mr. Bastien considered this income to be
property exempt from taxation. However, in 2003, the Minister of National
Revenue made an assessment in which he added the investment income to Mr.
Bastien’s income for the 2001 taxation year. The Minister confirmed the
assessment and Mr. Bastien’s estate appealed unsuccessfully to the Tax Court
and the Federal Court of Appeal.
2. Proceedings
[7] In the Tax Court (2007 TCC 625, 2008 D.T.C. 4064), Angers
J. applied the Federal Court of Appeal’s decision in Recalma v. Canada
(1998), 158 D.L.R. (4th) 59. He was of the view that the location of
investment income should be analysed by having regard to four factors: its
connection to the reserve; whether it benefited the traditional Native way of
life; the risk that taxation would erode Native property; and the extent to
which the investment income was derived from economic mainstream activity.
Angers J. thought that this fourth factor — whether the income was derived from
the economic mainstream — was the most important. He found that the Caisse
earned its income from activities in the economic mainstream which were not
closely connected to the reserve. Consequently, in his view, the investment
income was not exempt from taxation.
[8] The Federal Court of Appeal upheld this conclusion (2009
FCA 108, 400 N.R. 349). Nadon J.A. thought that this case was governed by the
court’s previous decisions in Recalma, Lewin v. Canada, 2002 FCA
461, 2003 D.T.C. 5476, and Sero v. Canada, 2004 FCA 6, [2004] 2 F.C.R.
613. Nadon J.A. highlighted that the most important consideration was whether
the investment income — that is, the profit generated from the capital invested
in a financial institution — was produced on or off the territory of the
reserve. In other words, Nadon J.A. found that if all or part of the funds were
invested in the general mainstream of the economy, the taxation exemption could
not apply. In his view, that was the case and the appeal should be dismissed.
[9] In concurring reasons, Pelletier J.A. (Blais J.A.
concurring) added some comments about the nature of the caisses populaires’
business activities. The caisses populaires, he thought, now fully participate
in the capital market, at least to the extent that their cash requirements permit or their
surplus funds demand. The nature of the capital market itself should be
given the most weight in order to determine the location of investment
income. That market is not limited to a reserve, a province or even a
country.
3. Issue
[10] There
is only one question before the Court: Was Mr. Bastien’s interest income earned
on the term deposits with the Caisse populaire Desjardins du Village Huron
exempt from income taxation because it was personal property situated on a
reserve?
[20]
At paragraphs 11 and
12, Cromwell J. commenced his analysis and stated:
III. Analysis
[11] The
appellant submits that the analyses in the Tax Court and the Federal Court of
Appeal were faulty in two related respects. First, they failed to give
appropriate weight to the contractual nature of the investment vehicle in
determining whether or not it was situated on a reserve. Mr. Bastien
contracted with the Caisse on the reserve for a particular rate of return on
his investment to be paid to him on the reserve; how the Caisse produced income
by dealings with others, the appellant contends, was not relevant to
determining the location of Mr. Bastien’s investment income. The
appellant points to art. 1440 of the Civil Code of Québec, S.Q. 1991, c.
64, which provides that a contract has effect only between the contracting
parties and does not generally affect third persons. Second, the appellant
submits that the courts below erred by giving determinative weight to the fact
that the income was derived from the commercial mainstream; the appellant says
that all the relevant factors ought to have been considered and they all favour
the reserve as the location of the interest income.
[12] The respondent
substantially supports the reasoning of the Federal Court of Appeal. To be
exempt from taxation, the interest income must be closely connected to a
reserve, that is to say, that the issuer’s income-generating activities must be
exclusively situated on a reserve. In this case, as the Caisse’s
income-generating activities were in the commercial mainstream, Mr. Bastien’s
interest income paid by the Caisse cannot be exempt from taxation.
Additionally, the respondent submits that the privity of contract rule should
not limit the courts in making factual findings about the location of the
issuer’s income-generating activities. Nor should the rule imply that the situs
of the contract is the situs of the investment income.
[21]
Cromwell J. – at paragraph 16 –
referred to Williams, supra, and acknowledged the location of
property is “not objectively easy to determine.” He commented that:
… While this search for location may seem at times to be more
the stuff of metaphysics than of law, the attribution of location is what the Indian
Act provisions require. The difficulty of doing so means that
it is not generally possible to apply a simple, standard test to determine the
location of intangible property. …
[22]
In the course of his analysis
concerning the location of income, Cromwell J. – at paragraphs 18 to 28 –
continued:
[18] To address this challenge, Gonthier J.
in Williams set out a two-step test. At the first step, the court
identifies potentially relevant factors connecting the intangible personal
property to a location. “A connecting factor is only relevant”, wrote Gonthier
J., “in so much as it identifies the location of the property in question for
the purposes of the Indian Act” (p. 892). Thus, even in this somewhat
metaphysical sphere, the focus is clearly on ascribing a physical location to
the property in question. Connecting factors mentioned in Williams include
things such as the residence of the payor and the payee, the place of payment
and where the employment giving rise to qualification for the benefit was
performed: Williams, at p. 893. As Gonthier J. noted,
potentially relevant connecting factors have different relevance depending on
the categories of property and the types of taxation in issue. So, for
example, “connecting factors may have different relevance with regard to unemployment
insurance benefits than in respect of employment income, or pension benefits”
(p. 892). To take this into account, as well as to ensure that the analysis
serves to identify the location of the property for the purposes of the Indian
Act, at the second step, the court analyses these factors purposively in
order to assess what weight should be given to them. This analysis
considers the purpose of the exemption under the Indian Act; the type of
property in question; and the nature of the taxation of that property (p. 892).
[19] Williams thus establishes a clearly structured
analysis, but one that turns on careful consideration of the particular
circumstances of each case assessed against the purpose of the exemption. As
Gonthier J. noted at p. 893, the Williams approach “preserves the
flexibility of the case by case approach, but within a framework which requires
the court to assess the weight which is to be placed on the various connecting
factors”. The Williams approach applies here because we are dealing
with the location of a transaction — the payment of interest pursuant to a
contract — for the purposes of taxation.
[20] In this case and others, the Tax Court
and the Federal Court of Appeal have developed and applied jurisprudence which
adapts the Williams analysis to the taxation of interest and other
investment income. As this is the first case in this Court since Williams
to address this issue, it is timely to restate and consolidate the analysis
that should be undertaken in applying the s. 87 exemption to interest income. I
will therefore review the analysis required by Williams in more detail,
focusing in turn on the purpose of the exemption, the type of property, the
nature of the taxation of that property and the potentially relevant connecting
factors.
(i) The Purpose of the
Exemption
[21] In Mitchell v. Peguis Indian Band,
[1990] 2 S.C.R. 85, La Forest J. discussed the purpose of both the tax
exemption and the immunity from seizure in the Indian Act. With respect
to the exemption from taxation, he observed that it serves to “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 of Indian affairs” (p. 130). He summed up his
discussion of the purpose of the provisions by noting that since the Royal
Proclamation of 1763, R.S.C. 1985, App. II, No. 1, “the Crown has always
acknowledged that it is honour-bound to shield Indians from any efforts by
non-natives to dispossess Indians of the property which they hold qua Indians”.
He added an important qualification: the purpose of the exemptions is to
preserve property reserved for their use, “not to remedy the economically
disadvantaged position of Indians by ensuring that [they could] acquire, hold
and deal with property in the commercial mainstream on different terms than
their fellow citizens”: p. 131. As La Forest J. put it:
These provisions are not
intended to confer privileges on Indians in respect of any property they may
acquire and possess, wherever situated. Rather, their purpose is
simply to insulate the property interests of Indians in their reserve lands
from the intrusions and interference of the larger society so as to ensure that
Indians are not dispossessed of their entitlements. [Emphasis added; p.
133.]
[22] However, La Forest J. was careful to
emphasize that even with respect to purely commercial arrangements, the
protections from taxation and seizure always apply to property situated on a
reserve. As he put it, at p. 139:
… if an Indian band
concluded a purely commercial business agreement with a private concern, the
protections of ss. 87 and 89 would have no application in respect of the assets
acquired pursuant to that agreement, except, of course, if the property was
situated on a reserve. It must be remembered that the protections of ss.
87 and 89 will always apply to property situated on a reserve. [Emphasis
added.]
[23] The Court returned to the purpose of the
exemptions in Williams. Gonthier J. confirmed that the purpose of
the exemptions “was 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, or creditors to seize” (p.
885). Echoing the limitation described by La Forest J. in Mitchell,
Gonthier J. added that “the purpose of the sections was not to confer a general
economic benefit upon the Indians” (at p. 885) and that “[w]hether the Indian
wishes to remain within the protected reserve system or integrate more fully
into the larger commercial world is a choice left to the Indian” (p. 887). In
light of this, Gonthier J. held that the purpose of the requirement in s. 87
that the property be “situated on a reserve” is to “determine whether the
Indian holds the property in question as part of the entitlement of an Indian qua
Indian on the reserve” (p. 887). In both Union of New Brunswick
Indians and God’s Lake, the Court confirmed that the purpose of the
exemptions was as set out in Mitchell and Williams.
[24] It will be useful to make two additional
points.
[25] The first is that a purposive approach
to the application of the exemption provisions must be rooted in the statutory
text and does not give the court “license to ignore the words of the Act ... or
otherwise [circumvent] the intention of the legislature” which that text
expresses: University of British Columbia v. Berg, [1993] 2 S.C.R.
353, at p. 371. As Professor Sullivan has wisely observed, even when the
broad purposes of legislation are clear, “it does not follow that the
unqualified pursuit of those purposes will give effect to the legislature’s
intention”: R. Sullivan, Sullivan on the Construction of Statutes (5th
ed. 2008), at p. 297; see also Nowegijick, at p. 34. A
purposive analysis must inform the court’s approach to weighing the connecting
factors. But it must be acknowledged that there may not always be a
complete correspondence between the meaning of the text and its broad,
underlying purpose.
[26] The second and related point concerns
the expression “Indian qua Indian”. In both Mitchell and Williams,
the Court referred to the purpose of the exemption as protecting property
which Indians hold qua Indians: Mitchell, at p. 131; Williams,
at p. 887. In some of the subsequent jurisprudence, this has been taken as a
basis for importing into the s. 87 analysis the question of whether the income
in question benefits the traditional Native way of life. For example, in Canada
v. Folster, [1997] 3 F.C. 269, the Federal Court of Appeal
attributed the significance of this factor to La Forest J. in Mitchell,
observing that he had “characterized the purpose of the tax exemption provision
as, in essence, an effort to preserve the traditional way of life in Indian
communities by protecting property held by Indians qua Indians on a
reserve” (para. 14). In Recalma, the Federal Court of Appeal identified
as a relevant consideration the question of whether the investment income
benefits the traditional Native way of life (para. 11). This factor has been
relied on in cases in the Tax Court and the Federal Court of Appeal since
Recalma: see, e.g., Lewin v. Canada, 2001 D.T.C. 479, at
paras. 36 and 63–64.
[27] The reference to rights of an “Indian qua
Indian” in Mitchell, which was repeated in Williams, and the
linking of the tax exemption to the traditional way of life have been
criticized: C. MacIntosh, “From Judging Culture to Taxing ‘Indians’: Tracing
the Legal Discourse of the ‘Indian Mode of Life’” (2009), 47 Osgoode Hall
L.J. 399, at p. 425. However, I do not read either judgment as
departing from a focus on the location of the property in question when
applying the tax exemption. The exemption provisions must be read in
light of their purpose, but not, as Professor MacIntosh puts it, be “let loose
from the moorings of their express language” (p. 425). A purposive
interpretation goes too far if it substitutes for the inquiry into the location
of the property mandated by the statute an assessment of what does or does not
constitute an “Indian” way of life on a reserve. I do not read Mitchell or
Williams as mandating that approach.
[28] In my respectful view, Recalma and
some of the cases following it have gone too far in this direction. The
exemption was rooted in the promises made to Indians that they would not be
interfered with in their mode of life: see, e.g., R. H. Bartlett, “The
Indian Act of Canada” (1977-1978), 27 Buff. L. Rev. 581, at pp. 612-13; Mitchell,
at pp. 135–36. However, a purposive interpretation of the exemption does
not require that the evolution of that way of life should be impeded. Rather,
the comments in both Mitchell and Williams in relation to the
protection of property which Indians hold qua Indians should be read in
relation to the need to establish a connection between the property and the
reserve such that it may be said that the property is situated there for the
purposes of the Indian Act. While the relationship between the
property and life on the reserve may in some cases be a factor tending to
strengthen or weaken the connection between the property and the reserve, the
availability of the exemption does not depend on whether the property is
integral to the life of the reserve or to the preservation of the traditional
Indian way of life. See M. O’Brien, “Income Tax, Investment Income, and the
Indian Act: Getting Back on Track” (2002), 50 Can. Tax J. 1570, at pp.
1576 and 1588; B. Maclagan, “Section 87 of the Indian Act: Recent Developments
in the Taxation of Investment Income” (2000), 48 Can. Tax J. 1503, at p.
1515; M. Marshall, “Business and Investment Income under Section 87 of the Indian
Act: Recalma v. Canada” (1998), 77 Can. Bar Rev. 528,
at pp. 536-39; T. E. McDonnell, “Taxation of an Indian’s Investment Income”
(2001), 49 Can. Tax J. 954, at pp. 957-58.
[23]
In Bastien, supra the
property in question was interest income derived from term deposits in a branch
of Caisse Populaire Desjardins du Village Huron, situated on the Wendake
Reserve. Cromwell J. held that the investment income earned from the term
deposits was personal property and – except for the exemption – would be
included as income from property since it was not part of any business
activity.
[24]
Cromwell J. returned to the matter
of the connecting factors and – at paragraphs 38 to 42, inclusive – stated:
(iv) Connecting
Factors
[38] Williams requires the court to identify the
connecting factors for the type of property in question: p. 892. Gonthier
J. identified several potentially relevant connecting factors including: “the
residence of the debtor, the residence of the person receiving the benefits,
the place the benefits are paid, and the location of the employment income
which gave rise to the qualification for benefits”: p. 893. While it is
instructive to review the various connecting factors considered in that case,
one must bear in mind that the factors relevant to the receipt of unemployment
insurance benefits which were in issue there are not necessarily those relevant
to receipt of interest income. The type of property is important in
identifying the relevant connecting factors.
[39] Gonthier J. turned first to the
“traditional test” (p. 893), the residence of the debtor, which had been
applied in Nowegijick, at p. 34. However, given that the
debtor in Williams was the federal Crown and that there were special
considerations in determining the location of the Crown, he concluded that the
residence of the debtor was a factor entitled to limited weight in the context
of unemployment insurance benefits: p. 894. For the same reasons,
he found that the place of payment was also of limited weight. Other
potentially relevant factors considered were the residence of the recipient and
where the employment income, which was the basis of the qualification for the
benefits paid, had been earned: p. 894. Noting that unemployment
insurance benefits are based on premiums arising out of previous employment,
Gonthier J. observed that “the connection between the previous employment and
the benefits is a strong one” (p. 896). He thought that the tax treatment of
premiums and benefits reinforced the strength of this connection: p. 896.
Given the strength of this connecting factor, Gonthier J. concluded that the
place of residence of the recipient at the time of receipt would only be
significant if it pointed to a location different from that of the qualifying
employment. Importantly, he also concluded that given the many links
between the employment income and the reserve, the employment income giving
rise to the benefits was clearly on the reserve on any test: “[t]he employer
was located on the reserve, the work was performed on the reserve, the
appellant resided on the reserve and he was paid on the reserve” (p. 897).
Gonthier J. was also careful to note that he was not attempting to develop a
test for the situs of the receipt of employment income or to determine
the relevance to the analysis of the benefit recipient’s place of residence at
the time of receipt: pp. 897-98.
[40] Gonthier J. rejected resolving the
location of the unemployment insurance benefits by simply applying conflict of
laws principles about the location of a debt. He noted that the purposes
of conflict of laws principles have little or nothing in common with the
purpose underlying the Indian Act tax exemption and that the location of
property for tax exemption purposes should be considered according to the
purposes of the Indian Act, not the purposes of the conflict of
laws: p. 891. However, as Gonthier J. acknowledged and later cases
have confirmed, this does not make irrelevant for Indian Act purposes
the whole body of existing law about the location of various types of
property. While Gonthier J. in Williams declined to adopt the
residence of the debtor as the governing factor simply because that is the
applicable conflict of laws rule, he noted that it may remain an important
connecting factor, or even an exclusive one, provided that the weight assigned
to it is determined in light of the purpose of the Indian Act tax
exemption, the type of property and the nature of the taxation in issue.
[41] Other cases illustrate the ongoing
relevance to the Indian Act tax exemption of general legal principles
about the location of property. In Union of New Brunswick Indians, the
question was whether Indians living in New Brunswick were exempt from sales tax on purchases, made off the reserve, of
goods to be used on the reserve. A majority of the Court applied the rule
that tax is paid at the point of sale and concluded that the tax was not in
respect of property situated on a reserve. Similarly in God’s Lake, in
the context of interpreting the exemption from seizure of property situated on
a reserve, the Court applied traditional common law principles and statutory
provisions to determine that funds in an off-reserve bank account were not
situated on the reserve. The Court was careful to distinguish taxation
transactions where the location is objectively difficult to determine from cases
in which the issue is simply where a potentially exigible asset is located:
para. 18. However, it is important to note that the rule about the
location of a bank account is not a conflict of laws principle, but a generally
applicable legal rule which, in that case, was included in a statute. Of
course, a different legal test is used to determine the location of a bank
account for the purposes of protection from seizure and the location of a
transaction, such as the payment of interest, for the purposes of
taxation. However, it would be hard to justify the conclusion, for
example, that a bank account was situated on a reserve for the purposes of
exemption from seizure but that a contractual obligation entered into on the
reserve to pay interest there on that same account was not on the reserve for
the purposes of exemption from taxation.
[42] These cases underline the point that
general legal rules about the location of property are relevant for the
purposes of the Indian Act. Thus, provisions and jurisprudence relating
to the location of income may prove helpful in deciding whether income is
located on a reserve: see O’Brien, at pp. 1589-91. While these rules
cannot be imported from one context into another without due consideration,
they ought to be considered and given appropriate weight in light of the
purpose of the exemption, the type of property and the nature of the taxation
in issue.
[25]
After finding the connecting
factors identified in Williams, supra were potentially relevant,
Cromwell J. embarked on the following analysis at paragraphs 44 to 47,
inclusive.
[44] I turn first to the location of the
debtor, a factor traditionally relied on to determine the location of the
obligation to pay. Here the debtor is the Caisse whose head office and
only place of business as well as its only fixed asset is located on the
Wendake Reserve. The income — interest agreed to be paid by the Caisse
to Mr. Bastien — arises from a contractual obligation between the
taxpayer and the Caisse which was entered into on the reserve. By virtue
of the contract, the income was to be paid (and was paid) by the Caisse by
depositing it into the taxpayer’s account on the reserve: see art. 1566
of the Civil Code of Québec. Thus, the location of the debtor and the
place where payment must be made are clearly on the reserve. Unlike the
situation facing the Court in Williams, where reliance on the location
of the debtor involved the complex question of the location of the federal
Crown, there is no such complication here. The Caisse’s only place of business
is on the reserve and its obligation, both under the contract and the Civil
Code, was to pay on the reserve. As noted earlier, the Court in God’s
Lake applied generally applicable legal rules about the location of a bank
account for the purposes of the exemption from seizure and while the fact that
it applied these rules is not dispositive of the question of the location of
the interest income in issue here, it tends to reinforce the conclusion that
the interest income is located on the reserve in this case. While the
provisions relied on by the Court in God’s Lake do not apply here
because they relate to banks and not to caisses populaires, both the contract
between the parties and the provisions of art. 1566 of the Civil Code
provide that payment of the interest income is to be made on the reserve.
[45] Having regard to the purpose of the
exemption, the type of property and the nature of the taxation of that
property, the connecting factors of the location of the debtor, the place where
the legal obligation to pay must be performed and the location of the term
deposits giving rise to the income should in my view be given significant
weight in the circumstances of this case. As noted, the property flows
from a contractual obligation which, both under the contract and the terms of
the Civil Code (art. 1566), is to be performed on the reserve. The
deposits themselves and the account into which the interest on them is paid are
on the reserve. The debtor’s only place of business is on the reserve.
Thus, the type of property supports the view that the connecting factors of the
place of contracting, the place of performance and the residence of the debtor
should weigh heavily in attributing a location to the interest income. The
nature of the taxation — the income is income from property —
reinforces this view. And so does the purpose of the exemption, which is
to preserve Indian property on a reserve.
[46] The analysis must also take account of
other potentially relevant connecting factors. Here, those factors
reinforce rather than detract from the conclusion that the interest income is
property situated on the reserve.
[47] Consider the residence of the payee, Mr.
Bastien. That of course was on the reserve. As for the source of the
capital which was invested to produce the interest income, it too was earned on
the reserve. There is some parallel with Williams in this
regard. In Williams, the employment income which gave rise to the
entitlement to unemployment insurance benefits had been earned on the reserve.
Gonthier J. noted that the connection between the benefits and the qualifying
employment was strong because the benefits are based on premiums arising from
the previous employment: p. 896. In this case, while the interest income
was derived from the loan to the Caisse, it was Mr. Bastien’s business income,
generated on the reserve and not assessed by the Minister, which produced the
capital which in turn was invested to produce that income. These other potentially
relevant connecting factors do not point to any other location than the reserve
and tend to strengthen rather than undermine the connection between the
investment income and the reserve.
[26]
With respect to the form of the
investment and the meaning of the phrase “commercial mainstream”, Cromwell J.
continued at paragraphs 51 to 54, inclusive:
[51] Mr. Bastien made a simple loan to the
on-reserve Caisse. The Caisse’s income-producing actions and contracts after
Mr. Bastien invested in term deposits cannot be deemed his own and do not
diminish the many and clear connections between his interest income and the
reserve. Consequently, the potentially relevant factor of the location of the
issuer’s income-generating activities is of no importance in this case.
[52] In my respectful view, the Recalma line
of cases has sometimes wrongly elevated the “commercial mainstream”
consideration to one of determinant weight. More precisely, several
decisions have looked to whether the debtor’s economic activity was in the
commercial mainstream even though the investment income payable to the Indian
taxpayer was not. This consideration must be applied with care lest it
significantly undermine the exemption.
[53] The expression “commercial mainstream”
was used in Mitchell. In one context, the expression was used to
emphasize the distinction between property that is held pursuant to treaty or
agreement from property that is not. This distinction is important for the
purposes of s. 90 of the Indian Act, which deems certain personal
property to be on a reserve for the purposes of the tax exemptions. La Forest
J.’s reasons in Mitchell distinguish between property that is deemed by
s. 90 to be on a reserve — that is, property purchased with Indian funds
or money appropriated by Parliament for the benefit of Indians, or property
given to Indians under a treaty or agreement — from property
otherwise acquired and therefore not deemed to be on the reserve. Thus,
the expression “commercial mainstream” in this context was not a factor to
identify the location of property, but a consideration to help identify
property which, although actually located elsewhere, was deemed by s. 90 to be
located on a reserve. La Forest J. explained (at p. 138):
When
Indian bands enter the commercial mainstream, it is to be expected that they
will have occasion, from time to time, to enter into purely commercial
agreements with the provincial Crowns in the same way as with private
interests. … Indians have a plenary entitlement to their treaty
property; it is owed to them qua Indians. Personal property
acquired by Indians in normal business dealings is clearly different; it is
simply property anyone else might have acquired, and I can see no reason
why in those circumstances Indians should not be treated in the same way as
other people.
There can
be no doubt, on a reading of s. 90(1)(b) [i.e. personal property
given to Indians under a treaty or agreement], that it would not apply to
any personal property that an Indian band might acquire in connection with an
ordinary commercial agreement with a private concern. Property of that
nature will only be protected once it can be established that it is situated on
a reserve. Accordingly, any dealings in the commercial mainstream in
property acquired in this manner will fall to be regulated by the laws of
general application. [Emphasis added.]
(See also O’Brien, at p.
1576; D. K. Biberdorf, “Aboriginal Income and the ‘Economic Mainstream’” in
Canadian Tax Foundation, Report of Proceedings of the Forty-Ninth Tax
Conference (1998), 25:1-23, at pp. 25:8-25:9; Maclagan, pp. 1507-8.)
[54] As I mentioned earlier, La Forest J. in Mitchell
also noted that the purpose of the legislation is not to permit Indians to
“acquire, hold, and deal with property in the commercial mainstream on
different terms than their fellow citizens”: p. 131. However, he was clear
that, even if an Indian acquired an asset through a purely commercial business
agreement with a private concern, the exemption would nonetheless apply if the
asset were situated on a reserve. As he emphasized, “[i]t must be
remembered that the protections of ss. 87 and 89 will always apply to property
situated on a reserve”: p. 139.
[27]
In the course of concluding his
reasons, Cromwell J. stated – at paragraphs 60 to 64:
[60] I do not agree that the “commercial
mainstream” factor should be given determinative weight in this case. The
question is the location of Mr. Bastien’s interest income. As I have
discussed earlier, the question is not where the financial institution earns
the profits to pay its contractual obligation to Mr. Bastien. Yet the
focus of the “commercial mainstream” analysis in the courts below led them to
concentrate the analysis on the Caisse’s income-earning activities rather than
on Mr. Bastien’s. The exemption from taxation protects an Indian’s
personal property situated on a reserve. Therefore, where the investment
vehicle is, as in this case, a contractual debt obligation, the focus should be
on the investment activity of the Indian investor and not on that of the debtor
financial institution: see McDonnell, at p. 957; Maclagan, at p.
1522; O’Brien, at pp. 1576 and 1580.
[61] When one focuses, as required by Williams,
on the connecting factors relevant to the location of Mr. Bastien’s interest
income arising from his contractual relationship with the Caisse, it is
apparent that the other commercial activities of the Caisse should have been
given no weight in this case. Mr. Bastien’s investment was in the nature of a
debt owed to him by the Caisse and did not make him a participant in those
wider commercial markets in which the Caisse itself was active.
[62] Of course, in determining the location
of income for the purposes of the tax exemption, the court should look to the
substance as well as to the form of the transaction giving rise to the income.
The question is whether the income is sufficiently strongly connected to the
reserve that it may be said to be situated there. Connections that are
artificial or abusive should not be given weight in the analysis. For example,
if in substance the investment income arises from an Indian’s off-reserve
investment activities, that will be a significant factor suggesting that less
weight should be given to the legal form of the investment vehicle. There is
nothing of that nature present in this case. Cases of improper manipulation by
Indian taxpayers to avoid income tax may be addressed as they are in the case
of non-Indian taxpayers.
[63] Applying the exemption of interest
income in this case is broadly consistent with the purpose of preserving Indian
property situated on the reserve. It provides an investment option protected
from taxation for Mr. Bastien’s property while preserving it against possible
seizure.
4. Conclusion
[64] All potentially relevant factors in this
case connect the investment income to the reserve. In the circumstances
of this case, the fact that the Caisse produced its revenue in the “commercial
mainstream” off the reserve is legally irrelevant to the nature of the income
it was obliged to pay to Mr. Bastien. This is true as to both form and
substance. Mr. Bastien’s investment income should therefore benefit from the s.
87 Indian Act exemption.
[28]
The English version of the reasons
of Deschamps and Rothstein JJ. was delivered by Deschamps J.. Although agreeing
with the result, she delineated those portions of the judgment of Cromwell J.
with which she disagreed, commenting – at paragraphs 105 to 110, inclusive as
follows:
[105] Furthermore, regarding the
application of the connecting factors proposed in Williams, I do not
agree that 20 years of experience drawn from decisions of Canadian courts
should be swept aside.
[106] I cannot agree with
Cromwell J.’s description of the nature of the relevant transaction for
income tax purposes. My colleague considers that the relevant transaction
is the payment of interest (paras. 15, 19 and 41). With respect, if,
in Williams, the transaction on which the issue of eligibility for the
exemption was based was found to be the receipt of benefits, it was because of
the taxing provision in issue in that case (Williams, pp. 891 et
seq.). In the instant case, the property in issue is the right to be
paid interest under the investment contract. Under s. 12(4) of the Income
Tax Act, it is only when the taxpayer’s income for a given taxation year is
computed that the tax consequences of this right are realized: the accrued
interest must be included in the taxpayer’s income. Since the interest
does not actually have to be paid for the property to attract tax consequences,
I do not see how the payment of interest could be the personal property whose
status under the Indian Act is in issue. Accordingly, little
weight should be attached to the place where the payment is to be made.
[107] Moreover, the decision to attach
determinative weight to the fact that the payment could be made on the reserve
is in my view not only anachronistic, but unrealistic. In this age of
electronic transactions, the fact that interest is paid at maturity into an
account administered on a reserve seems to me to be a tenuous connection.
Indians, like all other citizens, can have access to their funds from almost
anywhere. To assume that they go to a Caisse populaire situated on a
reserve when they want to have access to their funds, it would be necessary to
assume that they do things differently than other citizens.
[108] I would also point out that
ownership of a right provided for in a contract does not lead to the concept of
the location of a deposit account as was the case in God’s Lake, which
concerned the seizure of amounts deposited in an account.
[109] In sum, I cannot agree with
Cromwell J.’s analysis for several reasons. First, he attaches
excessive weight to formal connections that, in certain circumstances, have a
tenuous relationship with the reserve. Second, he essentially gives
determinative weight to a single factor — the debtor’s place of residence —
while rejecting the concrete connecting factors of the creditor’s place of
residence and the location of the activity that generated the capital.
Third, he fails in his analysis to consider the provision that governs the tax
treatment of interest income. In short, the factors he chooses to apply
are in reality but one, the debtor’s place of residence, and his analysis is
inconsistent with the historical purpose of the exemption.
[110] The parallel consideration of these
two appeals highlights the need to identify concrete and discernable
connections with the reserve. In the appeal of Mr. Bastien’s estate,
all the connecting factors favour granting the exemption. In
Mr. Dubé’s appeal, on the other hand, the connection results from a legal
fiction that has no basis in solid evidence.
[29]
In Dubé, supra the
judgment of the majority was delivered by Cromwell J.. As in Bastien,
supra the issue was whether the interest earned on term deposits with the
Caisse was exempt from taxation because it was situated on a reserve. With
respect to the issue of whether the property was situated on a reserve,
Cromwell J. – at paragraphs 14 to 18, inclusive, stated:
1. Property
Situated on a Reserve
[14] As noted, the Caisse issuing the deposit certificates, while it is
located on a reserve, is not located on Mr. Dubé’s reserve. Moreover, the
trial judge was not persuaded that Mr. Dubé’s principal residence was on any
reserve. In my view, the first fact — that the Caisse was not on Mr. Dubé’s
reserve — does not make the income ineligible for the exemption and that fact,
as well as the fact that his principal residence was not on a reserve, while
potentially relevant, should receive little weight when considered in light of
the type of property, the nature of the taxation in issue and the purpose of
the exemption. The text of the Indian Act and the Court’s jurisprudence
lead me to this conclusion.
[15] The taxation exemption under s. 87(1)(b) of the Indian
Act refers to an Indian’s personal property situated on “a” reserve and not
to property on his or her “own” reserve. The Court has consistently
held that the meaning of the words “on a reserve” should be approached having
regard to their substance and their ordinary, common sense meaning: Nowegijick
v. The Queen, [1983] 1 S.C.R. 29, at p. 41; R. v. Lewis, [1996] 1
S.C.R. 921, at p. 958; Union of New
Brunswick Indians v. New Brunswick (Minister of Finance), [1998] 1 S.C.R. 1161, at paras. 13–14; McDiarmid
Lumber Ltd. v. God’s Lake First Nation, 2006 SCC 58, [2006] 2 S.C.R. 846,
at para. 19. The ordinary, common sense meaning of “on a reserve” does not
require that the property be on any particular reserve. As my colleague
Deschamps J. points out, the legislative history of the exemption provides
further support for the view that residence on the reserve where the property
is located is not a requirement.
[16] At least two decisions of the Court also support this
interpretation. In Union of New Brunswick Indians, the Court observed
that on-reserve sales to Indians living off-reserve were exempt from sales tax:
para. 43. My reading of this conclusion is that it is not necessary for an
Indian to hold property on his or her own reserve, nor is it necessary that he
or she reside on a reserve, to be eligible for the tax exemption provided for
in s. 87. Similarly, in God’s Lake, McLachlin C.J., writing for a
majority of the Court, noted that a band’s property would be situated on a
reserve and therefore exempt from seizure even if it were on deposit at a
financial institution on a reserve other than the band’s own reserve: para.
62. Both of these decisions support the view that the exemption applies
to property on a reserve, not just to property on a particular reserve.
[17] In Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85, La
Forest J. stated at one point in his reasons that the exemptions in ss. 87 and
89 have “no application” absent “a discernible nexus between the property
concerned and the occupancy of reserve lands by the owner of that property”: p.
133. In my view, this brief reference cannot be taken as authority for the view
that the Indian claiming the exemption must occupy reserve lands where the
property is situated. Rather, when read in the context of the reasons as
a whole, the passage in my view was intended simply to emphasize the need for a
strong connection between the property and the reserve. As noted earlier,
imposing a requirement that the Indian claiming the exemption needs to occupy
reserve land where the property is situated would be inconsistent with the text
and legislative history of the provisions as well as with the subsequent
jurisprudence from this Court.
[18] I conclude that, having regard to the ordinary meaning of the words
and the Court’s decisions interpreting them, the expression “situated on a
reserve” means any reserve, not just a reserve where the Indian taxpayer
resides or to which community he or she belongs. In other words, Mr. Dubé’s
investment income is not excluded from the exemption simply because he did not
reside on the reserve where the income was paid.
[30]
Further in his analysis, Cromwell
J. held that Dubé’s place of residence should be accorded little weight since
the absence of a financial institution on his own reserve did not permit him to
make an investment there. Further, the type of property – income earned on term
deposits – had a strong connection with the particular reserve where the Caisse
was located. In the course of concluding that the interest income was located
on a reserve – and therefore exempt from taxation – Cromwell J. – at paragraphs
28 to 31, inclusive stated:
[28] First, it is important to
take into account the significant differences between unemployment insurance
benefits and interest income, in other words, to pay careful attention to the
type of property. As Gonthier J. pointed out in Williams, connecting factors
may have a different relevance with regard to unemployment insurance benefits
than in respect of other types of income: p. 892. With respect to unemployment
insurance benefits paid by the federal government, the “traditional test” of
the residence of the debtor was given limited weight because the debtor — the
federal Crown — is present throughout Canada, and the purposes behind fixing
the situs of an ordinary person do not apply to the Crown and in
particular to the Canada Employment and Immigration Commission in respect of
the receipt of unemployment insurance benefits: pp. 893–94. In this case,
unlike in Williams, the potentially relevant connecting factors such as
the place of contracting, place of the debtor and place of payment can be
applied meaningfully: the Caisse is physically present and carries on
business on the reserve and the interest income was payable there. In
short, there is no reason in this case, unlike the situation in Williams,
to discard or give little weight to these factors which connect the interest
income to the Mashteuiatsh Reserve.
[29] Second, absent in this
case is the symmetry between the tax implications of premiums and benefits that
existed in Williams. That symmetry was found in Williams to
strengthen the connection between the place of employment and the benefits. The
same cannot be said here. The fact that capital (such as, for example, the
aggregation of profits from a business on the reserve) is accumulated in a way
that was exempt from tax bears no necessary relationship to the tax treatment
of investment income arising from that capital. Moreover, to give determinant
weight to this factor in these circumstances could open the door to tax
exemption for investment income wherever and however earned, provided that the
sums invested had been accumulated on a tax exempt basis on a reserve.
[30] Finally, in weighing the
connecting factors on a case-by-case basis, it is easy to lose sight of the
fact that in particular categories of cases, one connecting factor may have
much more weight than another: Williams, at p. 892. Given the
strength of the connecting factors relating to the location where the contract
of investment was entered into, where it was to be performed and the Caisse’s
place of business, the fact that the bulk of the capital invested was not
derived from the tax-exempt activities on a reserve does not in my view
appreciably weaken the connection between the income and the Mashteuiatsh
Reserve.
3.
Where the Income was Spent
[31] During the years under
assessment, the appellant lived part time off-reserve and owned real property
off-reserve. The trial judge thus inferred that a portion of the interest
income may well have been spent off a reserve. The location where the
investment income is spent was identified as a potentially relevant factor by
the trial judge in Recalma v. Canada, [1997] 4 C.N.L.R. 272 (T.C.C.),
although one entitled to little weight in determining the location of
investment income: pp. 278-79. This factor has also been considered in
subsequent investment income cases: see, e.g., Lewin v. Canada,
2001 D.T.C. 479, at paras. 43 and 63, aff’d 2002 FCA 461, 2003 D.T.C.
5476. However, in my view, this consideration is not a relevant
connecting factor in determining the location of the income earned on the term
deposits in issue here. As I see it, the type of property, the nature of
the taxation of that property and the purpose of the exemption do not support
giving any weight to where the money received as interest income is spent.
[31]
The dissenting reasons of
Deschamps and Rothstein JJ. were delivered by Deschamps J. and at paragraphs 34
to 40, inclusive of the English version, she stated:
[34] This appeal was heard together with Bastien
Estate v. Canada, 2011 SCC 38. In Bastien, I explain why the
interest accrued under Alexandre Dubé’s investment contract cannot be exempt
from taxation. I express the opinion in that case that for the exemption
provided for in s. 87(1) of the Indian Act, R.S.C. 1985,
c. I‑5, to apply to an Indian’s personal property, the property must
have concrete and discernible connections with a reserve.
[35] In the instant case, the findings of fact of the Tax Court of
Canada judge disclose no such concrete connections. The connections
resulting from the investment contracts that generated the interest that
accrued in the taxation years in issue are of limited weight for the purposes
of the Indian Act. Under the provision governing the tax treatment
of interest income, the taxpayer must include any accrued interest in his or
her income, even if it has not been paid (Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.), s. 12(4)). For this reason,
the place of payment should be given little weight. Moreover, any
significance of the place of payment is further reduced by the fact that the
taxpayer can have access to his or her money without going to the reserve.
[36] The place at which a contract was signed is a factor that cannot be
considered in isolation for the purposes of the Indian Act, since
the parties would have been free to choose a place without regard to any
objective requirement that it be connected with a reserve. The factors
established by the Court must not be open to contractual manipulation in ways
that are inconsistent with the purpose of the exemption. Experience has
shown that it is easy for taxpayers to set up contractual frameworks that
create legal relationships that are not based on real requirements. This
is why it is necessary to identify concrete and discernible connections with a reserve.
[37] The creditor’s place of residence might be of some relevance, but
it cannot be determinative, since this factor ceased to be a condition of
eligibility for the exemption more than a century ago.
[38] Where a taxpayer has a right to be paid interest that is provided
for in an investment contract, the particular nature of this type of property
makes it necessary, in order to take account of the purpose of the exemption,
to consider the activity that resulted in the accumulation of the capital
deposited with the financial institution. If that capital results from an
on‑reserve activity that generates exempt property, this factor could
justify giving the interest provided for in the contract the same tax treatment
as the product of the activity. This approach would make it possible to
maintain a form of symmetry between the tax treatment of the property that
results in the accumulation of the capital and the tax treatment of the
interest.
[39] In light of the findings of fact of the Tax Court of Canada judge,
it is impossible to identify a sufficient concrete connection with the reserve
in this appeal. Those findings are set out in Bastien, and it will
not be necessary to repeat them here in their entirety. It will suffice
to mention that Mr. Dubé did not reside on the reserve, that he was unable
to explain where large deposits made at the Caisse populaire Desjardins de
Pointe‑Bleue came from and that the judge was unable to establish a
connection between the deposited capital and the transportation company
operated by Mr. Dubé. No reason was given for entering into the
contract on the reserve that would enable the Court to hold that this fact
furthers the purpose of the exemption. Even though the debtor was
situated on the reserve and even though this factor does connect the property
with the reserve, the other concrete factors outweigh it significantly.
While it is true that the contract in this case was signed on the reserve, this
factor cannot be considered significant, since the debtor’s place of residence
was also on the reserve.
[40] To grant the exemption in such circumstances would be tantamount to
turning the reserve into a tax haven for Indians engaged in unspecified
for-profit activities off the reserve.
[32]
The position of the Appellants is
that the recent decisions of the Supreme Court of Canada were in effect
game-changers and that it is now permissible for the lower courts to apply the
plain meaning of s. 87 of the Indian Act, without resorting to the
complicated and imprecise process of attempting to assign weight to the various
connecting factors. At least, the intent of the parties should be given
consideration and the location of the employer – as debtor – on the Six Nations
Reserve should override other factors identified in Williams, supra.
[33]
I cannot agree with that
proposition. I repeat the opening sentence of paragraph 16 of the reasons of
Cromwell J. in Bastien, supra:
Where, because
of its nature or the type of exemption in question, the Location of property is
not objectively easy to determine, the courts must apply
the connecting factors approach set out in Williams v. Canada,
… (Emphasis added.)
Connecting
factors:
Location
of the employer:
[34]
NLS was located on the Six Nations
Reserve. Although there was no direct evidence adduced in the within appeals,
the relevant years at issue with respect to the employment of Mawakeesic and
Marcinyshyn are within the same period as those taxation years under appeal in
the case of Robinson v. The Queen, 2010 TCC 649, [2011] 2. C.T.C.
2286. I wrote that decision and there was an Agreed Statement of Facts referred
to at paragraph 8, wherein the extent and nature of the operations of NLS and
O.I. – referred to in that case as OIEL – were set forth in considerable
detail, including – at paragraphs 9 and 10 – those extracted from previous
judgments issued by the Tax Court of Canada and the Federal Court. I am
prepared to infer that there was no significant difference in the facts
relevant to the within appeals and those in Robinson and earlier cases
cited therein pertaining to the scope of the operations of NLS that would
render it unsafe to apply the following statement – from Robinson – to
the within appeals. At paragraph 75 of that judgment, I commented:
[75] NLS was located on the Six Nations Reserve and employed
some people living on that Reserve. Some employees lived there but none of the
Appellants lived on Six Nations or any other reserve during the periods
relevant to their appeals. It is clear on the evidence – including the Agreed
Facts – that Obonsawin located NLS on Six Nations Reserve so employees could
claim a tax exemption pursuant to section 87 of the Indian Act. Not that
there is anything wrong with that. The contracts between NLS and each Appellant
employed in the within appeals were genuine and legal rights and obligations
were created. It is obvious the economic benefit to Six Nations Reserve was
very modest, particularly in the context of overall revenue generated by NLS
through its business operations where – in 1997 – 94% of its gross income went
to pay employees. At one point, 1400 people were employed by NLS and there is
no evidence that after 1997 any amount of revenue was available to benefit the
Six Nations Reserve. There is no evidence as to the number of people employed
in the NLS office who lived on the Reserve or – if off-reserve – whether they
were sufficiently nearby to engage in activities that could be beneficial to
the Reserve by providing even a modest economic benefit. On the evidence before
me, there was no significant benefit flowing to the Six Nations Reserve from
the business activities of NLS when examined in the larger context of its
purpose and business operations throughout Canada. None of the Appellants in the within appeals worked on nor lived
on that Reserve and there is no evidence any of them spent any money there. In Canada
v. Monias (C.A.), 2001 FCA 239, [2001] 3 C.T.C. 244, the Federal Court of
Appeal held that although the location of the employer can be regarded as a
connecting factor, the evidence must demonstrate the scope of the employer’s
activities on the reserve or some benefit flowing to the reserve attributable
to the employer’s location. A location mainly as a convenience will not assist
to any significant extent in making the necessary connection of employment
income to a reserve. On March 14, 2002, the Supreme Court dismissed the
application for leave to appeal.
Location
of employment:
[35]
The overwhelming majority of
services provided by Mawakeesic and Marcinyshyn were performed off-reserve,
within the City of Thunder Bay or the District of Thunder Bay, which encompassed 22
towns and villages and included the Reserve. The evidence of Dubec, Executive
Director of AMI during the relevant years was that less than 10% of the total
services delivered by that organization were provided to the Reserve. AMI had
its headquarters at Royston Court in Thunder Bay where its administrators, office staff and service
providers carried out tasks in accordance with the objects stated in the Letters
Patent. Several people were employed – full-time and part-time – and
consultants were retained, when needed, to provide various services to all
persons of Aboriginal ancestry. It is reasonable to assume they would have
participated in the delivery of services to residents of the Reserve.
Mawakeesic and Marcinyshyn worked primarily in the FASD program and while they
may have attended at the Reserve – on occasion – for home visits, the
proportion of the work performed by each of them at that location could only
have been a fraction of the 10% of the overall mandate of AMI that was carried
out there.
[36]
In her testimony, Dubec stated
that a predecessor agency to AMI was located on the Reserve and income earned
by the workers was exempt from tax. The facility and programs were funded by an
Aboriginal organization. There was no space on the Reserve to expand the
operations of that agency. On March 3, 2000, AMI was incorporated pursuant to
the laws of Ontario as a self-governing entity and received funding from
the provincial government to carry out the objects set forth in the Letters
Patent. AMI purchased the Royston Street property in Thunder
Bay, additional staff was hired and the
scope of programs, although expanded, pursued the same goals of the predecessor
agency in providing various services to persons of Aboriginal ancestry residing
in the District of Thunder Bay.
[37]
The on-reserve location of the
predecessor organization has the potential to raise an issue that was the
subject of the decision of the Federal Court of Appeal in Clarke v. Minister
of National Revenue, 1997 CarswellNat 623, also reported as Canada v.
Folster, [1997] 3. F.C. 269. The case dealt with the income taxation
of a status Indian who lived on the Norway House Reserve and was employed as an
Administrator in the Norway House Indian Hospital. The hospital – before being destroyed by fire – had
been located on that reserve. It was rebuilt nearby and continued to serve –
primarily - the residents of Norway House Reserve. The judgment of the Court
was delivered by Linden J.A. who analyzed the connecting factors considered in Williams.
At paragraphs 24 to 29, inclusive, he stated:
24 It has been
submitted on behalf of the appellant that, as a result of a "technical
relocation" of the hospital in which she worked, the appellant has been
denied tax exempt status in a manner which is contrary to the spirit of
Williams. It is interesting to note that, following the 1952 relocation, the
federal government continued to recognize the tax exemption to registered
Indians who worked in the hospital until 1968, when the policy was unilaterally
changed. The change was explained in a letter written by Mr. Jean Chrétien,
then Minister of Indian Affairs and Northern Development.42 The letter stated that, "effective
January 1, 1968, a new interpretation was given to the word reserve' in
relation to Indians and any income earned from employment at institutions on
Crown-owned lands which were not reserves, was subjected to taxation". The
effect of this policy change, after 16 years in which the exemption had been
granted, was suddenly to deny the exemption to Indian employees of the Norway House Indian Hospital, despite the fact that
absolutely nothing about the actual place or the manner in which the income was
earned had changed. In addition, it has been pointed out by the appellant that
the federal government is currently engaged in preparing a proposal to
designate the land upon which the hospital is built as reserve land.43 While such a future possibility cannot,
as the respondent points out, affect the current status of the land on which
the hospital is located, it further demonstrates that the circumstances
surrounding the location of the Norway House Indian Hospital are such
that its utility in determining the situs of the appellant's employment income is
substantially diminished. For this reason, I agree with the submission of the
appellant that the exact location of the metes and bounds of the hospital
cannot play a decisive role in determining whether a tax exemption in this case
would merely combat economic disadvantage or whether it would help to prevent
the erosion of property held by an Indian qua Indian on a reserve.
25 I am equally unpersuaded that the
location or residence of the employer is a major factor in the context of this
case. The residence of the debtor was considered and discarded in Williams as a
significant connecting factor on the ground that there were "conceptual
difficulties in establishing the situs of a Crown agency in any particular
place within Canada".44 The multitude of possibilities when the
Crown is involved renders the residence of the employer a somewhat arbitrary
concept, and certainly not a reliable ground upon which to extend or deny tax
exempt status. Furthermore, the traditional conflict of laws justification, the
ability to enforce judgment against the debtor, has nothing to add to the
analysis in the case of the Crown, which may be sued anywhere in Canada. Responding to this ambiguity, Gonthier J. proposed that
"the significance of the Crown being the source of the payments at issue
in this case may lie more in the special nature of the public policy behind the
payments, rather than the Crown's situs, assuming it can be fixed".45
26 A similar argument can be made on
the facts of this case. The appellant was an employee of the federal
government. She was paid at the Norway House
Indian Hospital by cheques which were issued to her by
the Department of Supply and Services office in Winnipeg, Manitoba. Although the structure and function of Health and Welfare Canada may not be analogous to that of the Canada Employment and
Immigration Commission, as considered by Gonthier J. in Williams, its situs
might be similarly fixed at any number of locations. The respondent in this
case has suggested, as potential locations of the employer, the Department of
Supply & Services office in Winnipeg, the City of
Ottawa and the location of the hospital
itself.46 In my view, there is nothing in the
location where the cheques were drawn up which speaks meaningfully to the issue
of whether or not the employment income was property situated on a reserve at
the time that it was earned by the appellant. The more significant feature of
the issuance of cheques by the Crown to the appellant is the fact that these
funds were advanced as part of the Crown's responsibility for the health care
of Indians and, in particular, the health of Indians on the Norway House Indian
Reserve.
27 Thus, a more in-depth analysis
reveals that the connecting factors relied upon by the Trial Judge were
inadequate in the context of this case. The inquiry must, therefore, be
expanded in order to consider other connecting factors. In my view, having
regard for the legislative purpose of the tax exemption and the type of
personal property in question, the analysis must focus on the nature of the
appellant's employment and the circumstances surrounding it. The type of
personal property at issue, employment income, is such that its character
cannot be appreciated without reference to the circumstances in which it was
earned. Just as the situs of unemployment insurance benefits must be determined
with reference to its qualifying employment, an inquiry into the location of
employment income is equally dependent upon an examination of all the
circumstances giving rise to that employment. Assessing these factors in the
context of this case, I am of the view that the tax exemption must be accorded
to the appellant's income in order to avoid the erosion of an Indian
entitlement. The personal property at issue is income earned by an Indian who
is resident on a reserve, and who works for a hospital which attends to the
needs of the reserve community; a hospital that was once located on, and is now
adjacent to, the reserve it services.
28 As the Trial Judge pointed out in
his application of the "connecting factors" test to the employment
situation of Elizabeth Ann Poker, "[n]ot to consider the circumstances
surrounding the employment does not accord with the purpose of the tax
exemption in the Indian Act as stated in Mitchell, supra, and Williams,
supra".47 Similarly, in McNab v. Canada, a 1992
decision of the Tax Court, Beaubier T.C.J. applied the connecting factors test
set out in Williams in the context of employment income. The case involved a
status Indian employed by the Saskatchewan Indian Women's Association. She
performed her employment duties both on and off reserves.48 The Tax Court Judge placed a great deal
of emphasis on the circumstances surrounding the claimant's employment. In
finding that the employee's income ought to be exempted from tax, he noted in
particular that "all of her work was on the instructions of an employer
whose sole purpose was to benefit Indians on reserves".49 The Tax Court Judge also took into
account the employer's location, the locations where the employee worked and
the place of payment. Each of these factors, however, was assessed in light of
the main purpose and functions of her employment. In my view, when the personal
property at issue is employment income, it makes sense to consider the main
purpose, duties and functions of the underlying employment; specifically, with
a view to determining whether that employment was aimed at providing benefits
to Indians on reserves.
29 In this case, the appellant's
employment was intimately connected with the Norway House Indian Reserve. Added
to this is the fact that the appellant, as I have noted, lived on the Norway
House Indian Reserve, the community which was served by the hospital in which
she worked. This residence factor in itself certainly cannot determine the
situs of employment income, just as other single factors cannot. An Indian who
resides on a reserve but derives employment income from his or her
participation in the commercial mainstream, cannot obtain the exemption. In
conjunction with the other circumstances surrounding the appellant's employment
income in this case, however, it does assist the Court in painting a more
complete picture of the relationship between the appellant's property, her
salary, and the Indian reserve: the appellant was a resident of the Norway
House Indian Reserve who benefited from and contributed to life on the reserve
by working in a hospital near the reserve which was dedicated to meeting the
health needs of the reserve community. To attribute great significance to the
fact that the hospital is now physically situated not on the reserve, but
adjacent to it, obscures the true nature of the employment income in this case.
In my view, based on all the factors discussed, the purpose of the legislation
is best served by holding that her salary was property held by an Indian qua
Indian on a reserve.
[38]
The difference between the facts
in Clarke and the within appeals of Mawakeesic and Marcinyshyn is
apparent. The headquarters of AMI were located 15 kilometres from the Reserve
and were housed in a property purchased by that corporate entity for its
purposes. The employment of these appellants was not “intimately connected”
with that Reserve. Having regard to the particular circumstances in Clarke,
it was not difficult for the Court to accept that the situs of the new hospital
was a “technical relocation” and the taxpayer continued to live on the reserve
serviced by that newly-constructed medical facility.
The
nature and circumstances of the employment including any benefit to a reserve:
[39]
There is no evidence that the
employment of either Mawakeesic or Marcinyshyn provided a benefit to any
reserve in the sense this factor is used in accordance with the decision in Williams
and numerous subsequent decisions. In order to access services provided by AMI,
it was necessary merely to self-identify as an individual of Aboriginal
ancestry and – as mentioned earlier – recipients of services included Métis,
non-status Indians, other Aboriginal people and members of a blended family who
were non-native. The services provided and programs offered by AMI were
extremely worthwhile and of great benefit to those who chose to access those services
provided by its office staff, care providers and consultants. In Robinson, occasionally,
some services provided by the various organizations and their facilities
required a direct link to a particular reserve, usually to satisfy a
requirement of Health Canada. Also, to gain admission to a certain housing
component operated within a larger program, women had to produce a status
Indian card.
Connections
to a reserve:
[40]
In Robinson, a substantial
body of evidence was adduced to demonstrate that many of the appellants had a
connection to their own reserve or another reserve and visited family and
friends or participated in powwows and other cultural events. In the within
appeals, there was no evidence that either Mawakeesic or Marcinyshyn had a connection
with any reserve, including their own.
Residence
of the employee:
[41]
At all times material, both
Mawakeesic and Marcinyshyn lived off-reserve in Thunder Bay.
Place
of payment:
[42]
Payment was made from the office
of NLS located on the Six Nations Reserve. Although there was no evidence as to
where the payments were received, it is reasonable to infer they were
transmitted electronically to a financial institution in Thunder Bay or
cheques were mailed to Mawakeesic and Marcinyshyn either to the AMI office at Royston Court
or to their residence. This method of payment was described in the Agreed
Statement of Facts in Robinson, as stated at paragraph 18 of the
judgment of Paris J. in Roe v. Canada, 2008 TCC 667. In the
within appeals, there is no evidence that connects the employment income of
either of these Appellants to any reserve either as a physical location or an
economic base.
[43]
There have been hundreds of
appeals filed in recent years by employees or former employees of NLS and O.I.
in which the issue was whether employment income was exempt from taxation by
virtue of section 87 of the Indian Act. In the within appeals of
Mawakeesic and Marcinyshyn, I am unable to distinguish the facts from those in
earlier cases, including Robinson. I reject the proposition that the
connecting factors test has become obsolete as a result of the recent decisions
of the Supreme Court of Canada in Bastien and Dubé, although the
analysis of Cromwell J. in each case will prompt ongoing discussion concerning
the weight to be assigned to those factors identified in Williams.
[44]
It is apparent there will be a
continuing need for a case-by-case analysis where warranted. It is also
evident there is a significant distinction between income generated from
property – including passive investment on a reserve – or income attributable
to benefits flowing from previous employment on a reserve, and employment
income earned by a non-resident providing services – off-reserve – in return
for payment from an employer located on a reserve. To hold otherwise would be
to ignore all relevant jurisprudence on this point since the decision in Nowegijick,
supra.
[45]
The appeal of Mawakeesic for the
taxation years at issue is dismissed.
[46]
The appeal of Marcinyshyn for the
taxation years at issue is dismissed.
[47]
The appeal of Bruce – spouse of
Marcinyshyn – for the taxation years at issue is tied to the result of her
appeal and is dismissed.
[48]
Although costs were sought in the
Reply filed in response to the Notice of Appeal filed by each Appellant,
counsel did not request costs at the hearing. The Appellants legitimately
believed that the recent decisions of the Supreme Court of Canada referred to
extensively in the within Reasons could permit a finding that the location of
NLS – as employer – was either determinative of the issue of the exemption from
tax on employment income or, alternatively, was of sufficient weight – standing
alone – to justify that result, even absent some of the other factors referred
to in the jurisprudence.
[49]
Having regard to all the
circumstances, no costs are awarded to the Respondent.
Signed
at Sidney, British Columbia this 8th day of November
2011.
“D.W. Rowe”
Email this Content