Date: 19990504
Docket: 95-1005-IT-I
BETWEEN:
DONALD B. HILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Beaubier, J.T.C.C.
[1]
This appeal pursuant to the Informal Procedure was heard at
Toronto, Ontario on April 29, 1999. The Appellant and Chief
Wellington Staats, Chief of the Appellant's tribe, the Six
Nations of the Grand River at Ohsweken, Ontario, testified.
[2]
Paragraphs 1 to 15 of the Reply to the Notice of Appeal read:
1. He admits that the Appellant invested $30,000.00 with the
Royal Bank of Canada (the "Investment") in February
1992.
2. He further admits that with respect to the Investment, no
amount was deducted by the Appellant in computing income for the
1992 taxation year.
3. He further admits taht the Appellant withdrew an amount of
$32,100.00 (the "Withdrawal") from the Investment and
that an amount of $9,630.00 was deducted from the Withdrawal on
account of income taxes payable.
4. He further admits that the Appellant made no deduction in
the computation of income for the 1993 taxation year with respect
to the Investment.
5. He denies all other allegations of fact contained in the
Appellant's Notice of Appeal.
6. In computing income for the 1993 taxation year, the
Appellant included in income the Withdrawal.
7. The Minister assessed the Appellant for the 1993 taxation
year by Notice of assessment mailed on October 11, 1994, and in
so assessing the Appellant for the 1993 taxation year, the
Minister included the Withdrawal from the Investment in
income.
8. In so assessing the Appellant, the Minister made the
following assumptions of fact:
(a) the facts hereinbefore admitted;
(b) the principal place of business of the Royal Bank of
Canada is not located on a reserve within the meaning of
paragraph 87(1)(b) of the Indian Act;
(c) during the 1993 taxation year, the Appellant withdrew
$32,100.00.00 from the Investment of which an amount of $2,100.00
represented interest earned on the Investment (the "Earned
Interest");
(d) the Earned Interest from the Investment is not the
personal property of an Indian situated on a reserve within the
meaning of paragraph 87(1)(b) of the Indian
Act.
9. The Minister agrees that the Appellant did not deduct any
portion of the Investment in computing his income for the 1992
taxation year, or any other year. As the amount of $32,100.00 was
received by the Appellant in the 1993 taxation year, the Minister
agrees that the Appellant be permitted to deduct the amount of
the Investment, or $30,000.00 in commputing income for the 1993
taxation year.
B. ISSUES TO BE DECIDED
10. The issue is whether the Earned Interest from the
Investment was properly included in the Appellant's income
for the 1993 taxation year.
C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF
SOUGHT
11. He relies on sections 3 and 4 and paragraphs 12(1)(c) and
81(1)(a) of the Income Tax Act (the
"Act") as amended for the 1993 taxation
year and paragraph 87(1)(b) of the Indian Act.
12. He submits that the Earned Interest from the Investment
should be included in computing the Appellant's income for
the 1993 taxation year in accordance with section 3 and
paragraph 12(1)(c) of the Act.
13. He further submits that the Earned Interest from the
Investment is not an amount exempt from any tax by any other
enactment of Parliament within the meaning of paragraph 81(1)(a)
of the Act as it was not received by the Appellant
from a financial institution whose principal place of business is
located on a reserve as defined by paragraph 87(1)(b) of the
Indian Act.
14. He requests that the appeal in respect of the 1993
taxation year be allowed and referred back to the Minister for
reconsideration and reassessment on the basis that the
computation of income be reduced by the amount of $30,000.00
which amount represents the Investment.
15. He requests that the appeal in every other respect be
dismissed.
[sic]
[3]
The Appellant is allowed his appeal in respect to the $30,000
described in paragraphs 9 and of the Reply.
[4]
With respect to the appeal as to the $2,100 earned interest, the
Appellant's deposit of $30,000 was in a branch of the Royal
Bank of Canada, located on the Six Nations Reserve at Ohsweken.
It was deposited there and was received by the Appellant from
there. The Appellant is an Indian residing on the Six Nations
Reserve at all material times. In 1993 he was a school principal
at a school near the Reserve and also farmed and manufactured
food on the Six Nations Reserve. Paragraphs 8(a) and (c) of the
assumptions in the Reply are correct. Assumption 8(b) was
not refuted; there is only a branch of the Royal Bank of Canada
situated on the Six Nations Reserve.
[5]
The $2,100 interest on the $30,000 principal was from a 1 year
term deposit with the bank. There is no evidence that the $30,000
principal was invested in a way that was connected to the Six
Nations Reserve. Rather, it was mingled with the Royal Bank of
Canada's general funds and invested wherever it invests
funds. Thus, the use of the $30,000 was similar to that to which
the Bank Acceptances were put in R. Mark Recalma et al v. The
Queen [1998] 2 C.T.C. 403 (F.C.A.). In paragraphs 13 and 14
of that case, Linden, J.A., speaking for the Federal Court of
Appeal, said:
13 Thus, in our view, taking a purposive approach, the
investment income earned by these taxpayers cannot be said to be
personal property "situated on a reserve" and, hence,
is not exempt from income taxation.
14 To hold otherwise would open the door to wealthy Natives
living on reserves across Canada to place their holdings into
banks or other financial institutions situated on reserves and
through these agencies invest in stocks, bonds and mortgages
across Canada and the world without attracting any income tax on
their profits. We cannot imagine that such a result was meant to
be achieved by the drafters of section 87. The result may, of
course, be otherwise in factual circumstances where funds
invested directly or through banks on reserves are used
exclusively or mainly for loans to Natives on reserves. When
Natives, however worthy and committed to their traditions, choose
to invest their funds in the general mainstream of the economy,
they cannot shield themselves from tax merely by using a
financial institution situated on the reserve to do so.
Leave to appeal Recalma to the Supreme Court of Canada
was refused [1998] S.C.C.A. No. 250.
[6]
For the reasons in Recalma, the appeal in respect to the
$2,100 interest is dismissed.
[7]
This appeal is referred to the Minister of National Revenue for
reconsideration and reassessment in accordance with these
reasons.
[8]
The Appellant had to come a distance of about 200 kilometres to
prosecute his appeal and had extensive correspondence and
adjournments while prosecuting the appeal and awaiting the
outcome of Recalma. He is awarded $250.00 in costs on
account of his out of pocket expenses relating to the appeal.
Signed at Ottawa, Canada this 4th day of May 1999.
"D.W. Beaubier"
J.T.C.C.
COURT FILE
NO.:
95-1005(IT)I
STYLE OF
CAUSE:
Donald B. Hill and The Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
April 29, 1999
REASONS FOR JUDGMENT BY:
The Honourable Judge D.W. Beaubier
DATE OF
JUDGMENT:
May 4, 1999
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Sean O'Donnell
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
95-1005(IT)I
BETWEEN:
DONALD B. HILL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on April 29, 1999 at Toronto,
Ontario, by
the Honourable Judge D.W. Beaubier
Appearances
For the Appellant:
The
Appellant himself
Counsel for the
Respondent:
Sean
O'Donnell
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1993 taxation year is allowed and the assessment is
referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with the attached
Reasons for Judgment.
May
The
Appellant is awarded costs respecting out of pocket expenses in
the amount of $250.
Signed at Ottawa, Canada this 4th day of May 1999.
J.T.C.C.
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