Stacey-Diabo v. The Queen, docket 2000-2046(IT)G

Date: 20021212

Docket: 2000-2046-IT-G

BETWEEN:

CAROL STACEY-DIABO et al.,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Lamarre, J.T.C.C.

[1]            These are appeals against assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act"). The Minister considered the employment income received by each of the appellants in certain of the taxation years 1996 through 1999 to be taxable pursuant to sections 2, 3 and 5 of the Act. The Minister did not consider that income as being exempt from income tax under any other enactment of Parliament within the meaning of paragraph 81(1)(a) of the Act. Indeed, when filing their tax returns, each of the appellants had claimed a tax exemption on the basis that their employment income constituted personal property of an Indian situated on a reserve within the meaning of subsection 87(1) of the Indian Act, R.S.C. 1985, c. I-5.

[2]            Paragraph 81(1)(a) of the Act provides:

             81. (1) There shall not be included in computing the income of a taxpayer for a taxation year,

(a) an amount that is declared to be exempt from income tax by any other enactment of 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.

[3]            Subsection 87(1) of the Indian Act reads as follows:

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

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

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

[4]            Although each of the five appellants' cases was called separately, there was some common evidence presented and all the cases were joined for the purposes of argument. I will therefore give only one set of reasons for all five appellants, although I will set out the relevant facts of each case.

[5]            Ms. Carol Stacey-Diabo is a band member of the Mohawks of Kahnawake in the province of Quebec. She was assessed for her 1997, 1998 and 1999 taxation years. During those years, she was working as a policy analyst with the federal Department of Indian Affairs and Northern Development ("DIAND") in the Self-government Policy Directorate. In that capacity, she provided advice on a wide variety of issues in relation to self-government negotiations between the Government of Canada and the First Nations reserves. Her duties were to represent DIAND with respect to self-government and land claims negotiations. She testified that the purpose of her position was to provide social, political, economic and cultural benefits to First Nations reserves across Canada, including her own community of Kahnawake, but not to any specific reserve. She also occasionally provided advice for the benefit of off-reserve members.

[6]            Ms. Stacey-Diabo lived in Ottawa for the purposes of her work, but she considered her main place of residence in the years in question to be her reserve at Kahnawake. Indeed, she would go back there once a month. The reserve is a two and a half hour drive from her place of employment in Ottawa and it would be difficult for her to commute from the reserve. She never worked on her reserve. DIAND refused her request to be allowed to perform her work on the reserve. She claimed a 50 per cent exemption in her tax returns for the relevant taxation years because she thought she had a greater chance of receiving the exemption if she claimed less than 100 per cent.

[7]            She compared her work to that done by people working for the Assembly of First Nations. She noted that the people working for that organization were granted full exemption even though its offices were located off-reserve, in Ottawa. She therefore complained that the June 1994 Indian Act Exemption for Employment Income Guidelines (Exhibit A-2 in file 2000-2046(IT)G) issued by Revenue Canada, as it was then called, were unevenly applied among different Indian people doing the same work, but for different entities.

[8]            Mr. Barry Ace is a band member of the West Bay First Nation on Manitoulin Island in the province of Ontario. He was assessed for his 1996 and 1997 taxation years. During those years, he was employed with DIAND as the curator of the Indian and Inuit Art Centre in Hull, Quebec. Mr. Ace's work consisted of promoting Aboriginal art and culture across Canada and internationally on behalf of DIAND and for First Nations peoples, whether located on or off reserves. The nature of his employment made it impossible for him to work from his reserve. However, he considers the reserve his home because of family ties there and his strong connections with the reserve.

[9]            For the years at issue, Mr. Ace claimed a tax exemption for 50 per cent of his employment income. When filing his tax returns, he included letters from his manager stating that he spent a high proportion of his time assisting and working with Indian people across Canada. He was required, for example, to perform some of his duties on Indian reserves as an art consultant and teacher (Exhibits A-2 and A-3 in file 2000-4318(IT)G). As a matter of fact, it appears that Mr. Ace worked five days in 1996 and 14 days in 1997 on a reserve. The Canada Customs and Revenue Agency ("CCRA") granted him a tax exemption with respect to his employment income earned during those two periods.

[10]          Mr. Ace was also involved with the Committee for the Advancement of Native Employment ("CANE") (Exhibit A-1, Tab 6 in file 2000-4318(IT)G). One issue dealt with by that committee was the request for tax treatment for employees of DIAND equal to that given their on-reserve counterparts.

[11]          Mr. Peter Ronald French is a band member of the Mohawks of Kahnawake in Quebec. He was assessed for his 1997, 1998 and 1999 taxation years. In 1997, he was working with DIAND as a special assistant to the then Minister of Indian Affairs and Northern Development, and was involved in various files such as the land claims, treaty policy and self-government files. In 1998 and 1999, Mr. French was working as a team leader with the Treaty Policy Directorate at DIAND. He worked on the government side in a number of treaty initiatives between the First Nations and the Federal Government.

[12]          Mr. French testified that it was not possible for him to work on a specific reserve because he travelled extensively to different reserves in Canada. Mr. French considered the Kahnawake reserve to be his home because he maintained ties with the reserve and visited it every weekend with his son. In 1998, he asked his employer for permission to work two days a week from his reserve, which request was denied. He had to work from Hull, Quebec, and he resided in Ottawa during all the years at issue. Mr. French claimed a tax exemption equal to 80 per cent of his employment income. He filed with his tax returns a letter from Jim Doughty, former chief of staff to the Minister of Indian Affairs and Northern Development, to support his claim that he worked for the benefit of Indians.

[13]          Ms. Deborah Price is a member of an Indian band in Sioux Valley, Manitoba. She was not born there but her father and grandfather were members of that band. She was assessed for her 1997 and 1998 taxation years.

[14]          In those years, Ms. Price was working for Human Resources Development Canada ("HRDC") in Hull, Quebec, with the Aboriginal Liaison Directorate. She lived in Nepean, Ontario for the purposes of her work, but she considered her reserve to be her home because of her family ties there.

[15]          She worked on a three-year national program put in place to transfer to Aboriginal people the control of their training programs. She also worked in the Aboriginal Relations Office at HRDC on the job strategy for Aboriginal people and on other files, such as Aboriginals' claims for their rights to Canada Pension Plan and Old Age Security. Part of her duties accordingly involved working with DIAND and the Royal Commission on Aboriginal Peoples.

[16]          Ms. Price testified that the direct beneficiaries of her work were First Nations and other Aboriginal people on and off reserve. She said that of the money she has helped distribute, 75 to 80 per cent went directly to First Nations on-reserve.

[17]          For the relevant taxation years, Ms. Price claimed a tax exemption equal to 65 per cent of her employment income. This proportion -- agreed upon by her immediate supervisor and by the Director General of the Aboriginal Relations Office - was based on the fact that money was being spent on a pan-Aboriginal program, but part of it went to Metis, Inuit people and urban groups.

[18]          Lastly, Ms. Margaret Lanigan is a band member of the Gordon First Nation in Saskatchewan. Although she was born in Winnipeg, she is a member through her mother, who is a member of that band.

[19]          Ms. Lanigan was assessed for her 1996 taxation year. She worked from January to September 1996 (inclusive) as a special assistant to the Minister of Indian Affairs and Northern Development. Her duties included the performance of collaboration, liaison and advocacy work for the benefit of First Nations people across Canada. For the last three months of 1996 (October to December), she worked for Native Leasing Services ("NLS") as a nurse, providing health services for Indians in Ottawa. At the hearing, her counsel advised the Court that, as a result of the decision of the Federal Court of Appeal in Shilling v. M.N.R., [2001] 4 F.C. 364, leave to appeal to the Supreme Court of Canada refused, [2001] S.C.C.A. No. 434 (Q.L.), Ms. Lanigan was no longer claiming an exemption with regard to her employment income from NLS.

[20]          Ms. Lanigan is still claiming a tax exemption for the income she received for her work at DIAND. During the period in question, she lived in Ottawa but she considered her home to be on her reserve because of her family ties there. She said that she came to work in Ottawa because "at the First Nation's level, there isn't necessarily the broad economic or social opportunities as would exist off-reserve" (see page 13 of the transcript in file 2001-4278(IT)G).

[21]          Ms. Lanigan claimed a tax exemption for 80 per cent of her employment income. She also filed a letter from Jim Doughty, then executive assistant to the Minister of Indian Affairs and Northern Development, to support her claim.

[22]          Counsel for the appellants also called to testify in the five appeals Ms. Elsie Cassaway, who used to work at the Assembly of First Nations in Ottawa. The purpose of her testimony was to make the point that there is no distinction between employment services provided, whether one is employed with the Government of Canada or with First Nations organizations.

[23]          Counsel for the appellants also called Mr. Robert K. Groves, a consultant, to testify concerning his own analysis of section 87 of the Indian Act, concerning the connecting factors that are essential in the application of section 87, and concerning the application of the 1994 Revenue Canada guidelines relating to the application of section 87.

[24]          In light of an objection by counsel for the respondent, I did not accept the testimony of Mr. Groves. On the one hand, counsel for the appellants had not met the requirements imposed by the Tax Court of Canada Rules (General Procedure) ("Rules") with respect to testimony by an expert witness. On the other hand, it was specifically stated by the Federal Court of Appeal in Canada v. Monias, [2002] 1 F.C. 51, leave to appeal to the Supreme Court of Canada refused [2001] S.C.C.A. No. 482 (Q.L.), that:

[32] . . . these appeals must be decided by applying the Indian Act and the relevant case law to the particular facts of the case. Since this exercise involves weighing and balancing various connecting factors in a particular factual matrix, it is difficult to attach much weight to an example in the Guidelines, where the facts given are neither complete, nor identical with those in the present case.

(page 65, paragraph 32)

[25]          For these reasons, I ruled that the testimony of Mr. Groves was not appropriate in the present appeals.

Issue

[26]          In the pleadings, the issue to be decided in each appeal was formulated as follows: "Are the amounts stated in the Reassessments for the subject taxation years covered by the statutory exemption of paragraph 81(1)(a) of the ITA as provided by sub-section 87(b) of the IA?" (See the Issue as stated in the Notices of Appeal and in the Replies to the Notices of Appeal.) The statutory provisions relied on by the appellants were paragraph 81(1)(a) of the Act and paragraph 87(1)(b) of the Indian Act. The respondent relied on the same statutory provisions but also on sections 2, 3 and 5 of the Act (with respect to the inclusion of employment income for tax purposes) and on section 2 of the Indian Act (for the definition of terms used in the Indian Act).

[27]          The relief sought by the appellants in their Notices of Appeal was that the reassessments for the taxation years at issue be vacated on the basis that "the amounts stated in these Reassessments are covered by the statutory exemption of paragraph 81(1)(a) of the ITA as provided by sub-section 87(b) of the IA" (see the relief sought or reasons relied on in the Notices of Appeal). To this the respondent replied that the appellants' salaries for the taxation years at issue were not personal property of an Indian situated on a reserve within the meaning of section 87 of the Indian Act and that, as a consequence, the employment income is not an amount declared to be exempt from income tax by any other enactment of Parliament within the meaning of paragraph 81(1)(a) of the Act (see the reasons relied on in the Replies to the Notices of Appeal).

Argument of the appellants

[28]          In his oral submissions, counsel for the appellants argued that, in order to determine the proper meaning of section 87 of the Indian Act, one must analyze the purpose of that section. In his view, it should be given a liberal construction which is more favourable to the recognition of the exemption. Indeed, counsel argued that the section 87 tax exemption for personal property of an Indian situated on a reserve is based on the historical character of the Indian peoples as sovereign nations. He submitted that taxation is a concept that was introduced by Western civilization and was not part of Indian culture. Counsel for the appellants referred to Williams v. Canada, [1992] 1 S.C.R. 877, a case in which the Supreme Court of Canada articulated various connecting factors to be considered for the purpose of determining the situs of intangible property, which includes employment income (see Nowegijick v. The Queen, [1983] 1 S.C.R. 29). Counsel submitted, however, that the connecting factors listed in Williams, supra, are not exhaustive, and that the analysis of connecting factors should be done on a case-by-case basis. In counsel's view, the important connecting factor in the present cases is the nature and character of the work performed. The appellant Indians, in their employment with the Government of Canada, were serving the reserves and the Indians who were the beneficiaries of their work. In taxing the appellants, the government is imposing a penalty that will affect the service and the benefit provided to the people who are supposed to be protected by section 87. In counsel's view, the salary paid to the appellants by the government is not the driving force behind their doing the work they do. The appellants were working to benefit and serve their people on the reserves. That was the driving force behind their work. Their employment income was not earned in the commercial mainstream, a notion foreign to the Indian mind. Finally, counsel submitted that the appellants stayed in Ottawa only for the purposes of fulfilling their responsibilities as civil servants and that their home has always been their reserves. For these reasons, counsel believed that the appellants' employment income was covered by the statutory exemption of section 87 of the Indian Act and should not be taxable in the taxation years at issue.

[29]          In written submissions presented after trial, counsel for the appellants also raised as an alternative argument that the administration of section 87 of the Indian Act by the respondent was contrary to section 15 of the Canadian Charter of Rights and Freedoms and section 35 of the Constitution Act, 1982. In his view, the respondent "has interpreted and applied the exemption discriminatorily, with the result that two people, similarly circumstanced, are treated differently" (paragraph 16 of the appellants' written submissions). Counsel for the appellants considers the assessments under appeal to be invalid on that basis.

Argument of the respondent

[30]          In written arguments submitted at trial, counsel for the respondent stated the issue as follows:

4.           In order for employment income of an Indian to be exempt from taxation, the following requirements of section 87 of the Indian Act must be met:

(a)         the receipt of salary income is personal property;

(b)         the property is owned by an Indian;

(c)         the Indian must be taxed on that property;

(d)         the property must be situated on a reserve.

                          Canada v. Folster, [1997] 3 F.C. 269, at pp. 275-76

5.           Nowegijick v. The Queen stands for the proposition that the receipt of salary income is personal property (condition (a)) and that the inclusion of personal property gives rise to a tax in respect of that property (condition (c)). There is no issue that the Appellant is an Indian (condition (b)).

                                       Williams v. Canada, [1992] 1 S.C.R. 877, at p. 888

Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85, at p. 110

6.           Consequently, the only issue before this Court is whether the employment income of the Appellant is property situated on a reserve. In considering the construction of section 87, it is useful to keep in mind the statement of Dickson, J. in Nowegijick, at p. 36:

"Indians are citizens and, in affairs of life not governed by treaties or the Indian Act, they are subject to all of the responsibilities, including payment of taxes, of other Canadian citizens."

                                         Nowegijick v. The Queen, [1983] 1 S.C.R. 29

[31]            Counsel then alluded to the historical perspective and to the purpose of section 87. He cited La Forest J. in Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85 at page 131:

             In summary, the historical record makes it clear that ss. 87 and 89 of the Indian Act, the sections to which the deeming provision of s. 90 applies, constitute part of a legislative "package" which bears the impress of an obligation to native peoples which the Crown has recognized at least since the signing of the Royal Proclamation of 1763. From that time on, 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, i.e., their land base and the chattels on that land base.

             It is also important to underscore the corollary to the conclusion I have just drawn. The fact that the modern-day legislation, like its historical counterparts, is so careful to underline that exemptions from taxation and distraint apply only in respect of personal property situated on reserves demonstrates that the purpose of the legislation is not to remedy the economically disadvantaged position of Indians by ensuring that Indians may acquire, hold, and deal with property in the commercial mainstream on different terms than their fellow citizens. An examination of the decisions bearing on these sections confirms that Indians who acquire and deal in property outside lands reserved for their use, deal with it on the same basis as all other Canadians.

[32]            In Williams, supra, the Supreme Court of Canada concluded that the determination of the situs of intangible personal property required a court to evaluate various connecting factors which tie the property to one location or another. The following approach to determining the location of intangible personal property (like employment income) is described in Williams in the following terms at pages 899-900:

         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 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.

[33]            In Mitchell, supra, La Forest J. stated that there must be a nexus between the property concerned and the occupancy of reserve lands by the Indians claiming the exemption (pages 133 and 137).

[34]            In counsel's view, there is no such discernible nexus in the present cases. Indeed, the appellants do not reside on any reserve and they do not perform their work on a reserve. Although the nature of their work focuses on Indian affairs, in no case does that work provide benefits to Indians residing on any reserve to which the appellants' income can be connected.

[35]            The relevant factors to be looked at are the residence of the appellants, the residence of the employer, the location where the work was done, the type of work being performed and the nature of the benefit provided to the reserve. In counsel's view, the relevant factors point to the situs of the employment income being off-reserve.

[36]            The fact that an employee does not live on a reserve can indicate that her or his employment income was not acquired or used on a reserve (see Monias, supra, paragraph 60). Furthermore, the fact that DIAND does not conduct its business on a reserve, and therefore provides no employment opportunities on a reserve, points to an off-reserve situs for the employment income (see Monias, pages 70-71). Also, working off-reserve connects the employment to a place other than a reserve. Indeed, it is an indication that the employee is acquiring employment income in the commercial mainstream (see Monias at pages 67-68; Shilling, supra, at page 380).

[37]            Furthermore, special circumstances may assist in determining the situs of the employment income. But where all other connecting factors would not situate the employment income on a reserve, it is unlikely that the special circumstances alone would be such as to tip the balance the other way (see Desnomie v. Canada (2000), 186 D.L.R. (4th) 718 (F.C.A.), page 727, paragraph 30; leave to appeal to the Supreme Court of Canada refused, [2000] S.C.C.A. No. 297 (Q.L.)).

[38]            Counsel submitted that the fact that the employment at issue involved services that related to Indians was not a reason for conferring preferred tax treatment under section 87 of the Indian Act (see Shilling, supra, at page 382). Even if it could be said that the work from which the employment income was earned benefited Indians on a reserve, this factor would not in itself be sufficient to situate that employment income on the reserve. As stated in Bell v. The Queen, 2000 DTC 6365 (F.C.A.), at page 6371, leave to appeal to the Supreme Court of Canada refused [2000] S.C.C.A. No. 372 (Q.L.), the particular benefit to the Native community is not an independent, free-standing connecting factor, rather, it is a standard by which to evaluate the nature-of-the-employment factor.

[39]            As was the case in Monias, supra, it would be difficult to justify a conclusion that the appellants acquired their employment income on reserves when they neither lived nor worked on any reserve. The appellants' work did not necessarily connect the acquisition or use of their income to the reserves as physical locations.

[40]            In the present cases, it is impossible to link either the employer or the beneficiaries of the services to any reserve. Even if it could be said that the appellants' employment was for the benefit of Indians, this consideration does not connect the appellants' employment income to any particular reserve and, consequently, does not help to locate their employment income (see Desnomie, supra, at page 725). To allow the appellants an exemption from taxation on their employment income would be an attempt to remedy the economically disadvantaged position of Indians who cannot find employment on their reserve. This is not the purpose of section 87 (see Folster, supra, page 293).

[41]            In this context, counsel for the respondent is of the view that the appellants' employment income is not exempt from tax by virtue of paragraph 81(1)(a) of the Act and paragraph 87(1)(b) of the Indian Act.

Analysis

[42]            I will deal first with the alternative argument raised by counsel for the appellants in his written submissions presented after trial. This argument was not raised in the pleadings but was put forward for the first time on the day of the hearing. This new argument concerned the application of the Charter and of the Constitution Act, 1982 in relation to the administration of section 87 of the Indian Act by the respondent. It came as a surprise to counsel for the respondent as well as to this Court. It is my opinion, and I so advised counsel for the appellants at trial, that this last-minute argument was an abuse of process in that it could have been raised much earlier. In Special Risks Holdings Inc. v. The Queen, 84 DTC 6054 (F.C.T.D.), Walsh J. said at page 6057:

. . . no proceeding should be entertained, even if it might be found to have some relevance, when it seeks the introduction of material, which the parties could have sought to introduce many months earlier, and which if granted would have the effect of preventing the action from proceeding. For this reason alone therefore the motion is an abuse of the process of the Court and cannot be entertained.

[43]            This passage was adopted by Judge Brulé of this Court in Canderel Limited v. The Queen, 93 DTC 938 at page 939, and the Federal Court of Appeal, in The Queen v. Canderel Limited, 93 DTC 5357, upheld Judge Brulé's finding that the amendment sought by one party on the sixth day of trial constituted an abuse of process. Décary J. concluded as follows at page 5362:

             On the facts of this case, it was therefore open to the Trial Judge to find that the proposed amendment, in the circumstances, manner and time in which it was sought, by its very nature and by its impact on a trial that was coming to an end was an abuse of process.

[44]            I therefore advised counsel for the appellants at trial that I would not accept any evidence relating to his alternative argument. For that reason, I will not deal with the new argument in the present reasons for judgment. I will concentrate my analysis on the arguments raised in the pleadings and developed before me at the hearing.

[45]            As stated in the pleadings, the issue is whether the employment income received by the appellants from the Government of Canada is covered by the statutory exemption in paragraph 81(1)(a) of the Act through the application of paragraph 87(1)(b) of the Indian Act. In his argument, counsel for the respondent mentioned the four requirements that must be met for section 87 of the Indian Act to apply (see paragraph 4 of his written arguments, reproduced at paragraph 30 of these reasons). The respondent does not dispute the fact that the first three conditions have been met in the present cases. There is, however, an issue between the parties with respect to the fulfilment of the last condition, namely that the appellants' employment income must be property situated on a reserve.

[46]            This question is not novel. Canadian Courts have had to deal in a number of cases with situations not dissimilar to those in the present appeals. This is clear from all the cases referred to by the parties. The case law in this regard is moreover consistent.

[47]            The policy considerations and legislative purpose behind section 87 were summarized by La Forest J. in Mitchell, supra, and were reproduced by counsel for the respondent in his argument (see paragraph 31 of these reasons). Although, through the implementation of this provision, it was acknowledged that property held by Indians qua Indians on their land base must be protected, Parliament was also very careful to stress that the exemptions from taxation apply only to personal property situated on reserves.

[48]            In analyzing section 87, the courts have always taken care to keep the tax exemption within the bounds set by that section, and the case law leaves no doubt that "the purpose of the legislation is not to remedy the economically disadvantaged position of Indians by ensuring that Indians may acquire, hold, and deal with property in the commercial mainstream on different terms than their fellow citizens. . . . Indians who acquire and deal in property outside lands reserved for their use, deal with it on the same basis as all other Canadians" (see Mitchell, supra, page 131).

[49]            As suggested by counsel for the respondent in paragraph 6 of his arguments, reproduced in paragraph 30 of these reasons, the limits of the tax exemption granted to Indians were clearly defined by Dickson J. in Nowegijick, supra, at page 36. It is accepted that Indians must not be treated differently than other Canadian citizens in affairs of life not governed by treaties or the Indian Act, and this includes the payment of taxes.

[50]            Therefore, the purpose of the situs test in section 87 of the Indian Act is to determine whether the Indian holds the property in question as part of the entitlement of an Indian qua Indian on the reserve (see Williams, supra, page 887), or whether it was acquired in the commercial mainstream, outside of a reserve, in which case the exemption of section 87 does not apply and dealings involving the property will be regulated by the laws of general application (see Mitchell pages 137-138).

[51]            The Supreme Court of Canada opted for a purposive approach in determining the situs of the property in Williams, supra. That approach is referred to as the "connecting factors" test. Gonthier J. held as follows at pages 892-893:

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

[52]            The Court then suggested a number of potentially relevant connecting factors in determining the location of the receipt of the intangible property (in that case, unemployment insurance benefits). Those factors were 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 the benefits.

[53]            With respect to the residence of the debtor, the Court realized that there were some conceptual difficulties in establishing the situs of a Crown agency in any particular place within Canada. The Court went on to say, however, that this does not necessarily mean that the physical location of the Crown is irrelevant to the purposes underlying the exemption from taxation provided by the Indian Act. However, it does suggest that the significance of the Crown being the source of the payments at issue in that particular case may have lain more in the special nature of the public policy behind the payments than in the Crown's situs, assuming it could have been ascertained. Therefore, the Court concluded, the residence of the debtor is a connecting factor of limited weight in the context of unemployment insurance benefits. For similar reasons, it determined that the place where the benefits were paid was of limited importance in that context.

[54]            Similarly, in Folster, supra, the Federal Court of Appeal said the following at page 289:

[25] . . . 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.

[55]            In Recalma v. Canada, [1998] 3 C.N.L.R. 279 (F.C.A.), leave to appeal to the Supreme Court of Canada refused, [1998] S.C.C.A. No. 250 (Q.L.), Linden J. stated that "where the income is employment income or salary income, the residence of the taxpayer, the type of work being performed, the place where the work was done and the nature of the benefit to the Reserve are given great weight. (See Folster, supra.)" (page 282).

[56]            The analytical framework for determining the situs of employment income was most recently discussed by the Federal Court of Appeal in Monias, supra. In that case, the taxpayer was an Indian employed by a native-run child care agency for families on reserves. The agency was funded by the Federal Government through DIAND. The taxpayer worked mostly off-reserve and the agency was physically located off-reserve. The taxpayer argued that the situs of his employment income was on a reserve because he provided employment services that benefited Indians living on reserves.

[57]            In Monias, supra, Evans J.A. of the Federal Court of Appeal examined the following connecting factors among others: the nature and location of the employment and the location and nature of the employer.

[58]            With respect to the nature of the taxpayer's employment, Evans J.A. held as follows:

             (a) Nature of employment

[33] While the weight to be assigned to particular connecting factors must always depend on the facts of each case, the location and nature of the employment, and the circumstances surrounding it, will generally be very important in situating an Indian's employment income for the purpose of section 87. (page 66)

[59]            With respect to the location of the employment, he said:

Location of employment

. . .

[37] There is no doubt that the performance of work off reserve is an indication that the employment income is not situated on a reserve: Shilling, supra, at paragraphs 47-48. However, the location of the employment is not in itself determinative: Bell v. Canada (1998), 98 DTC 1857 (T.C.C.), at page 1863. If the Minister abandoned the appeals in so far as they relate to income earned while the employees were working on a reserve because he regarded location as determinative, his view of the law was in my opinion incorrect. (page 67)

[60]            The taxpayer had argued in Monias that the employer was located off-reserve by necessity. This contention was dismissed by the Court. The fact that it was impracticable for the work to be performed on the reserves did not enable the Court to proceed on the basis that the employment duties had in fact been performed there. Evans J.A. said:

[43] I agree that necessity cannot locate on a reserve the performance of employment duties that were clearly performed off reserve, nor situate employment income on a reserve when the connecting factors clearly point to another location. The fact that the respondent works off reserve is a factor that tends to connect his employment income elsewhere than on a reserve.

(page 68)

[61]            With respect to the nature of employment services performed, the Court expressed the following opinion:

Nature of employment services

. . .

[46] However, while the employees' work may help to maintain and enhance the quality of life on the reserves for members of the bands living there, it does not necessarily connect the acquisition or use of their employment income to the reserves as physical locations. (page 69)

[62]            The Court also stated, with respect to the surrounding circumstances:

Surrounding circumstances

[47] In considering an employee's work as a connecting factor, the Court should not overlook the circumstances surrounding it: Folster, supra, at paragraph 27. This consideration ensures that, in weighing the employment factor, the Court assesses the situation as a whole. (page 69)

[63]            The location and nature of the employer was another factor analyzed by the Court:

             (b) Location and nature of employer

[50] The location of the employer has been regarded as a connecting factor under the analysis mandated by Williams, supra. However, in the absence of some evidence of the scope of the employer's activities on the reserve, or some benefit flowing to a reserve from the presence of the employer, it is not a factor to which much weight is apt to be assigned: Shilling, supra, at paragraph 35. In particular, an employer's location of convenience on a reserve will do little to connect the employment income to a reserve. (page 70)

[64]            The Court also looked at the residence of the employees as being another significant connecting factor, although not a universal requirement. The Court said:

[58] Since the policy underlying section 87 is to protect the reserves as an economic unit for the members of the bands living there, the residency of employees can be a significant factor in determining the situs of employment income. . . .

[59] However, because the residency of the owner of the personal property is not part of the statutory definition of the scope of section 87, it cannot be a universal requirement. Indeed, it may be clear from the facts that a person's tangible property is situated on a reserve, even though the person does not reside there. . . . However, I would note that in Mitchell, supra, at page 133, La Forest J., when apparently speaking of both tangible and intangible property, related the availability of the protections provided by sections 87 and 89 to whether or not there was "a discernible nexus between the property concerned and the occupancy of reserve lands by the owner of that property." [Emphasis added.]

[60] Residency can thus be an important factor in connecting employment income to a reserve, and the fact that an employee does not live on a reserve can indicate that her or his employment income was not acquired or used on a reserve. (page 72)

[65]            The Court then weighed the fact that the taxpayer resided and performed his employment duties off-reserve (often at great distances from the reserves) against the undoubted benefits to the residents of the reserves from the taxpayer's services and against the identity of the employer (an agency which originated in an agreement among governments and the chiefs of the bands that it was created to serve, and which was under the control of those chiefs) and the importance of the services to strengthening the essential social fabric of the reserves. Nonetheless, the Court concluded as follows:

[66] That the work from which employment income is earned benefits Indians on reserves, and indeed may be integral to maintaining the reserves as viable social units, is not in itself sufficient to situate the employment income there. It is not the policy of paragraph 87(1)(b) to provide a tax subsidy for services provided to and for the benefit of reserves. Rather, it is to protect from erosion by taxation the property of individual Indians that they acquire, hold and use on a reserve, although in the case of an intangible, such as employment income, it is the situs of its acquisition that is particularly important.

[67] By enacting paragraph 87(1)(b) Parliament made an important exception to the principle that those similarly situated should be treated in the same way for tax purposes. However, the paragraph cannot be read as exempting from income tax Indians' employment income that was not clearly earned in circumstances that link its acquisition to a reserve as an economic base.

[68] No doubt this is a relatively close case. However, on my reading of the jurisprudence, the benefit of the exemption will not readily survive the fragmentation of the more important connecting factors so as to enable claimants to establish that they are earning their living on a reserve, rather than in the broader Canadian economy. In my opinion, it would be difficult to justify a conclusion that the respondent acquired his employment income on the reserves served by Awasis, when he neither lived, nor worked there.

(page 74)

[66]            Finally, the issue of whether the nature of the work performed should be given less weight where the employment income is not connected to a specific reserve was addressed in the case of Desnomie, supra. In addressing the matter of the weight to be placed on whether employment income can be connected to a specific reserve, Rothstein J.A. stated the following:

[21] . . . The implication of the appellant's argument is that as long as an Indian is performing work for an Indian employer and for Indians from reserves, his employment income should be tax exempt, irrespective of where he, his employer, or the place of the employment is located, or where he is paid. There is no doubt the nature of the appellant's work is related to assisting reserve Indians when they move off the reserve. There is also no doubt that his employer is an Indian organization. The problem is that these considerations do not connect the appellant's employment income to any particular reserve. Even if it could be argued that the section 87 exemption applies when the property of an Indian is located on a reserve other than his own, in this case the nature of the employer and the employment alone do not identify a specific reserve to which the appellant's property can be connected. Therefore, these considerations do not help to locate his employment income.

[67]            In Shilling, supra, the Federal Court of Appeal was not required to decide how the words "a reserve" in section 87 should be interpreted. However, it made reference to the trial judge's inference that an Indian's property situated on any reserve is eligible for the tax exemption, stating:

[42] . . . However, we are not convinced that this meaning is compelled by the language of paragraph 87(1)(b), although we recognize that the personal property of an Indian may attract the benefits of section 87, even when, like Ms. Shilling, its owner does not reside on a reserve.

[68]            Applying all these principles to the present cases, the only factor connecting the employment income of each appellant to reserves is the nature of the work performed. However, the work was not performed for the benefit of any specific reserve and not for the benefit of the reserve which each appellant considered to be home. There was no discernible nexus between the employment income and the occupancy of reserve lands by the Indian appellants claiming the exemption (see Mitchell, supra, at page 133). In the taxation years at issue, all the appellants resided in the National Capital Region, at a considerable distance from their reserves. They all worked for the Government of Canada, representing its interests with respect to various Aboriginal issues.

[69]            All the appellants generally performed their employment duties off-reserve and reported to their fixed place of employment in the National Capital Region. While the appellants' work helped maintain and enhance the quality of life on reserves for the members of the bands living there, it did not connect the acquisition or use of their employment income to the reserves as physical locations. The circumstances surrounding the appellants' employment suggest that their connection with reserves is too remote.

[70]            The present cases may easily be differentiated from the only two cases in which the Federal Court of Appeal upheld a section 87 claim for an exemption of employment income from income tax. In Folster, supra, the taxpayer resided on a reserve and was employed at a government-funded hospital located adjacent to her reserve. Eighty per cent of the hospital's patients were Indians and historically the hospital had been located on the taxpayer's reserve. In Amos et al. v. The Queen, 99 DTC 5333 (F.C.A.), the taxpayers resided on a reserve but were employed off the reserve. The taxpayers were held to be entitled to the tax exemption because the Indian band had agreed to surrender the reserve for leasing purposes on the understanding that the lease would provide employment opportunities for band members. In those two cases, the circumstances surrounding the taxpayers' employment suggested a close connection with their own reserves, keeping in mind that they all lived on their reserves. This is clearly not the situation in the present appeals.

[71]            Furthermore, I cannot accept counsel for the appellants' argument that the driving force behind the appellants' work was not the earning of a salary but the sole desire to serve Indian people. The testimony of Ms. Lanigan was quite explicit when she expressed in the following terms the reason she accepted employment with DIAND: "at the First Nations level, there isn't necessarily the broad economic or social opportunities as would exist off-reserve" (see page 13 of the transcript in file 2001-4278(IT)G).

[72]            This is in my view an indication that the appellants wanted to become integrated into the Canadian workforce in the same manner as any other Canadian citizen. Through that choice, they accepted fuller integration into the larger commercial world and thereby accepted dealing on the same basis as all other Canadians. This means that they did not earn their employment income qua Indians on a reserve and they therefore fall outside the protected reserve system covered by the Indian Act. Indeed, the words of the late Judge Sobier in Brant v. M.N.R., 92 DTC 2274 at page 2279, cited with approval by the Federal Court of Appeal in Folster, supra, at page 293, are worth repeating here: "To allow the Appellant an exemption from taxation of this income would be an attempt to remedy the economically disadvantaged position of Indians who cannot find employment on the reserve. This is not the purpose of the exemption from taxation provided by section 87 of the Indian Act."

[73]            Finally, both Ms. Stacey-Diabo and Mr. Ace claimed for employees of DIAND tax treatment equal to that given their on-reserve counterparts, such as those Indian people working for the Assembly of First Nations. Ms. Cassaway testified that there is no distinction between services provided by employees of the Government of Canada and those provided by employees of other organizations such as the Assembly of First Nations.

[74]            Unfortunately, there is not much I can do in that respect. The legislation is carefully drafted to exempt from taxation only personal property of an Indian situated on a reserve. The Courts have articulated some connecting factors that tie personal property to a reserve. I have analyzed those factors in the context of the relevant facts in the present cases. I am not in a position to say whether the appellants have been treated inequitably in comparison with other Indian people working for the Assembly of First Nations. The present appeals do not deal with the latter situation. And even if there was unequal treatment by the CCRA, it would have no bearing on my decision as I must decide the questions raised by the present appeals by applying the Indian Act and the relevant case law to the particular facts of these cases (see Monias, supra, at page 65, paragraph 32).

[75]            In conclusion, the connecting factors respecting the employment income earned by the appellants placed that income primarily off-reserve. Therefore, the appellants' employment income was not exempt from taxation pursuant to section 87 of the Indian Act and paragraph 81(1)(a) of the Act.

[76]            The appeals are dismissed with costs.

Signed at Ottawa, Canada, this 12th day of December 2002.

"Lucie Lamarre"

J.T.C.C.COURT FILE NO.:                                   2000-2046(IT)G

STYLE OF CAUSE:                                               Carol Stacey-Diabo et al. v. The Queen

PLACE OF HEARING:                                         Ottawa, Ontario

DATE OF HEARING:                                           June 3 and 4, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge Lucie Lamarre

DATE OF JUDGMENT:                                       December 12, 2002

APPEARANCES:

Counsel for the Appellant: Emilio S. Binavince

Counsel for the Respondent:              Paul Plourde, Q.C.

                                                                                Jade Boucher

COUNSEL OF RECORD:

For the Appellant:                                                

                                     Name:                                 Emilio S. Binavince

Firm:                    Binavince Smith

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2000-2046(IT)G

BETWEEN:

CAROL STACEY-DIABO,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Barry Ace (2000-4318(IT)G), Peter Ronald French (2000-4319(IT)G), Deborah Price (2001-993(IT)G) and Margaret Lanigan (2001-4278(IT)G) on June 3 and 4, 2002, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant: Emilio S. Binavince

Counsel for the Respondent:              Paul Plourde, Q.C.

                                                                                Jade Boucher

JUDGMENT

                The appeals from the assessments made under the Income Tax Act for the 1997, 1998 and 1999 taxation years are dismissed with costs.

Signed at Ottawa, Canada, this 12th day of December 2002.

"Lucie Lamarre"

J.T.C.C.

2000-4318(IT)G

BETWEEN:

BARRY ACE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Carol Stacey-Diabo (2000-2046(IT)G), Peter Ronald French (2000-4319(IT)G), Deborah Price (2001-993(IT)G) and Margaret Lanigan (2001-4278(IT)G) on June 3 and 4, 2002, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant: Emilio S. Binavince

Counsel for the Respondent:              Paul Plourde, Q.C.

                                                                                Jade Boucher

JUDGMENT

                The appeals from the assessments made under the Income Tax Act for the 1996 and 1997 taxation years are dismissed with costs.

Signed at Ottawa, Canada, this 12th day of December 2002.

"Lucie Lamarre"

J.T.C.C.

2000-4319(IT)G

BETWEEN:

PETER RONALD FRENCH,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Carol Stacey-Diabo (2000-2046(IT)G), Barry Ace (2000-4318(IT)G), Deborah Price (2001-993(IT)G) and Margaret Lanigan (2001-4278(IT)G) on June 3 and 4, 2002, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant: Emilio S. Binavince

Counsel for the Respondent:              Paul Plourde, Q.C.

                                                                                Jade Boucher

JUDGMENT

                The appeals from the assessments made under the Income Tax Act for the 1997, 1998 and 1999 taxation years are dismissed with costs.

Signed at Ottawa, Canada, this 12th day of December 2002.

"Lucie Lamarre"

J.T.C.C.

2001-993(IT)G

BETWEEN:

DEBORAH PRICE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Carol Stacey-Diabo (2000-2046(IT)G), Barry Ace (2000-4318(IT)G), Peter Ronald French (2000-4319(IT)G) and Margaret Lanigan (2001-4278(IT)G) on June 3 and 4, 2002, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant: Emilio S. Binavince

Counsel for the Respondent:              Paul Plourde, Q.C.

                                                                                Jade Boucher

JUDGMENT

                The appeals from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed with costs.

Signed at Ottawa, Canada, this 12th day of December 2002.

"Lucie Lamarre"

J.T.C.C.

2001-4278(IT)G

BETWEEN:

MARGARET LANIGAN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on common evidence with the appeals of Carol Stacey-Diabo (2000-2046(IT)G), Barry Ace (2000-4318(IT)G), Peter Ronald French (2000-4319(IT)G) and Deborah Price (2001-993(IT)G) on June 3 and 4, 2002, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant: Emilio S. Binavince

Counsel for the Respondent:              Paul Plourde, Q.C.

                                                                                Jade Boucher

JUDGMENT

                The appeal from the assessment made under the Income Tax Act for the 1996 taxation year is dismissed with costs.

Signed at Ottawa, Canada, this 12th day of December 2002.

"Lucie Lamarre"

J.T.C.C.