Date: 20090408
Docket: A-586-07
Citation: 2009 FCA 108
CORAM: NADON
J.A.
BLAIS J.A.
PELLETIER
J.A.
BETWEEN:
ESTATE OF
ROLLAND BASTIEN
Appellant
and
HER MAJESTY
THE QUEEN
Respondent
REASONS FOR JUDGMENT
NADON J.A.
[1]
This is an
appeal from the decision of Justice Angers of the Tax Court of Canada,
2007TCC625, dated December 6, 2007, dismissing the appeal from the assessment
made by the Minister of National Revenue (the Minister) under the Income Tax
Act, R.S.C. 1985 (5th Supp.), c. 1, (the ITA), for the 2001
taxation year of the late Rolland Bastien (Rolland Bastien).
[2]
This
appeal raises the question of whether the investment income of Rolland Bastien,
who was an Indian under the Indian Act, R.S.C. 1985, c. I-5, was
situated on a reserve and is therefore exempt from taxation pursuant to
paragraph 81(1)(a) of the ITA and section 87 of the Indian Act.
The facts
[3]
The
following summary of facts is necessary to place the dispute raised by the
appeal into its proper context.
[4]
Rolland
Bastien was a member of the Huron-Wendat Nation and lived his entire life on
the Wendake Reserve, where he died in 2003. Throughout his
life, he worked on the reserve manufacturing moccasins. From 1970 to 1997, he personally operated a moccasin
manufacturing business, Les Industries Bastien enr., which he disposed of in
1997 in favour of his children, who also resided on the reserve.
[5]
In
the 2001 taxation year, Rolland Bastien held term deposits at the Caisse
populaire Desjardins du Village Huron (the Caisse du Village Huron) and
received interest on his investments in the amount of $64,416.79. Rolland
Bastien also received interest on investments with the Caisse populaire
Desjardins de Pointe-Bleue (the Caisse de Pointe-Bleue) in the amount of
$9,095.02. The interest from the investments
at the Caisse de Pointe-Bleue was litigated at trial, but is not the subject of
this appeal.
[6]
The
Caisse du Village Huron is situated on the Wendake Reserve and, in 2001, 60
percent of its members were Indians. It had assets consisting of, in
particular, cash deposits and investments with the Fédération des Caisses
Desjardins (the Federation), housing loans on and off the reserve, consumer
loans and business loans. From 1996 to 2003,
investments with the Federation accounted for approximately 25 percent of its
assets, and all of these investments were managed by the Federation and made
off the reserve. As for loans to individuals
and businesses, which account for 75 percent of the Caisse’s assets, around 30
percent of these loans were granted to Indians living on a reserve, including
those living on a reserve other than Wendake. As
a result, from 1996 to 2003, around two thirds of the Caisse du Village Huron’s
assets were invested outside the reserve.
[7]
The
income used for Rolland Bastien’s investments with the Caisse populaire du
Village Huron came exclusively from the operation of his business, Les
Industries Bastien enr., and from any proceeds from the sale of the business
paid by his children since 1997.
[8]
Rolland
Bastien considered the income from the operation of his business, Les
Industries Bastien enr., to be property exempt from taxation; this income was
neither audited by the Canada Revenue Agency, nor was it taxed. The
investment income generated by the deposit certificates with the Caisse du
Village Huron was reinvested in the business or used for the everyday needs of
Mr. Bastien and his spouse or to make other term investments with the caisses.
[9]
In
his assessment dated March 6, 2003, the Minister added the investment income
totalling $73,511 from the Caisse du Village Huron and the Caisse de
Pointe-Bleue to the computation of the appellant’s income for the 2001 taxation
year. The appellant appealed the assessment to the Tax Court
of Canada.
Decision of Justice Angers
[10]
To
begin with, Justice Angers noted that in order for the exemption from taxation
provided for at paragraph 87(1)(b) of the Indian Act to apply,
three elements must be present: being an Indian within the meaning of the Indian
Act, having possession of personal property, and that property being
situated on a reserve.
The judge noted that, in this case, it is admitted
that the late Rolland Bastien was an Indian and that the investment income was
personal property. Accordingly, the issue in
dispute was whether the investment income was, in fact, situated on a reserve.
[11]
To
answer this question, the judge carefully reviewed the legal principles
established in case law, particularly those from the Supreme Court’s decisions
in Williams v. Canada, [1992] 1 S.C.R. 877 (Williams) and Mitchell
v. Peguis Indian Band, [1990] 2 S.C.R. 85 (Mitchell) and from the
decision of this Court in Recalma v. Canada (1998), 98 D.T.C. 6238 (Recalma).
[12]
Justice
Angers highlighted that in Recalma, above, this Court restated the
principles enunciated in Williams, above, and identified four connecting
factors to be considered in determining the situs of investment income:
(1) the investment income’s connection to the reserve; (2) the benefit of the
investment income to the traditional Native way of life; (3) the potential
danger of the erosion of Native property; and (4) the extent to which the
investment income may be considered as being derived from economic mainstream
activity.
However, according to Justice Angers, the fourth
factor was the most important in that case.
[13]
Based
on an analysis of the connecting factors, the judge found that there were
indeed several connections between the investment income and the reserve. For
one thing, the reserve was Rolland Bastien’s place of residence, the source of
the capital, the location of the Caisse, the place where the investment income,
or at least a good part of it, was used, the location of the investment
vehicle, and the place where the investment income was paid. The judge
nonetheless found that these were factors of lesser importance in determining
the situs of investment income and that for that purpose, the emphasis
should mainly be placed on how the income was earned. In the case, the judge found that the income-generating
activities were derived from an economic mainstream activity and not closely
connected to the reserve. Consequently, the investment
income was not exempt from taxation.
Appellant’s submissions
[14]
As
I mentioned above, the appellant did not appeal the portion of the trial
judge’s decision as regards the investment income that the appellant received
from the Caisse de Pointe-Bleue. Therefore, this appeal only
contemplates the investment income from the Caisse du Village Huron, which
totals $64,416.79.
[15]
The
appellant’s first ground for challenging Justice Angers’ decision is that the
judge erred in his analysis of the connecting factors and gave too much weight
to the fact that Caisse du Village Huron was investing in the general
mainstream of the economy.
According to the appellant, however, nine of the ten
factors identified by the Tax Court of Canada in Recalma v. Canada (1996),
96 D.T.C. 1520, a decision affirmed by this Court in Recalma, above,
were satisfied.
[16]
Second,
the appellant is using certain articles of the Civil Code of Québec (the
Civil Code), and in particular article 1440, to allege that the contractual
agreements between the Caisse du Village Huron and third parties that are
financial institutions situated off the reserve (i.e., in the “general
mainstream of the economy”) have no effect on the contractual agreement reached
between a caisse and an Indian situated on the reserve.
[17]
Last,
the appellant submits that the judge erred in finding, for the purposes of
making his decision, that the connecting factors in the case at bar are the
same as those in Lewin v. Canada, 2002 FCA 461 (Lewin). To
the contrary, the appellant alleges that there are important factual
distinctions between this case and Lewin, above, because in that
decision, moreover, Mr. Lewin had never resided on the reserve and mainly
worked off the reserve. In fact, in Lewin,
the trial judge noted that the only distinctive feature of that case was that
the caisse was situated on the territory of the reserve.
Respondent’s submissions
[18]
The
respondent submits that this Court has already dealt with the question of
connecting factors on a number of occasions and that this case provides no
basis for reconsidering the method used to identify the situs of
investment income when applying section 87 of the Indian Act.
[19]
According
to the respondent, Justice Angers’ decision is consistent with the principles
developed by the case law.
In particular, the respondent alleges that there is
no major distinction between this case and Lewin, above, which dealt
with interest income from deposit certificates with the same establishement at
issue in this case, the Caisse populaire du Village Huron.
[20]
Lastly,
in response to the appellant’s argument based on the Civil Code, the respondent
submits that it serves no purpose to examine the contractual relations between
Rolland Bastien and the Caisse, since the purpose sought by the Civil Code
cannot be equated with the purpose of section 87 of the Indian Act.
Issue
[21]
It
is undisputed, in this case, that Rolland Bastien was an Indian and that
investment income is personal property. Therefore, the
appeal raises a single issue, which is whether Justice Angers erred in
concluding that Rolland Bastien’s investment income was not property “situated
on a reserve” and was therefore not exempt from taxation.
Analysis
A. Statutory provisions
[22]
Paragraph
81(1)(a) of the ITA provides that an amount that is declared to be
exempt from taxation by any other enactment of Parliament shall not be included
in computing the income of a taxpayer:
|
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.
|
81. (1) Ne sont pas
inclus dans le calcul du revenu d’un contribuable pour une année d’imposition
:
a) une somme
exonérée de l’impôt sur le revenu par toute autre loi fédérale, autre qu’un
montant reçu ou à recevoir par un particulier qui est exonéré en vertu d’une
disposition d’une convention ou d’un accord fiscal conclu avec un autre pays
et qui a force de la loi au Canada.
|
[23]
The
exemption provided by another enactment is found at section 87 of the Indian
Act, which 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.
(2) No Indian or band is subject to taxation
in respect of the ownership, occupation, possession or use of any property
mentioned in paragraph (1)(a) or (b) or is otherwise subject to
taxation in respect of any such property.
|
87. (1) Nonobstant
toute autre loi fédérale ou provinciale, mais sous réserve de l’article 83,
les biens suivants sont exempts de taxation :
a) le droit
d’un Indien ou d’une bande sur une réserve ou de terres cédées;
b) les bien
meubles d’un Indien ou d’une bande situés sur une réserve.
(2) Nul indien ou
bande n’est assujetti à une taxation concernant la propriété, l’occupation,
la possession ou l’usage d’un bien mentionné aux alinéas (1)a) ou b)
ni autrement soumis à une taxation quant à l’un de ces biens.
|
B. Standard of review
[24]
From the
decision of the Supreme Court in Housen v. Nikolaisen, [2002]
2 S.C.R. 235, we know that the standard of review on a question of law is
correctness, and that the trial judge’s finding of fact or of mixed fact and
law cannot be overturned unless the judge made a palpable and overriding error.
C. Is the investment income
situated on an Indian reserve?
[25]
In my
opinion, Justice Angers properly grounded his analysis in the legal principles
that have been established in the case law and did not err in law or make a
palpable and overriding error. Furthermore, I can find no error in Justice
Angers’ analysis of the connecting factors developed by this Court in Recalma,
above.
[26]
To
determine whether an Indian’s investment income is situated on a reserve, it is
first necessary to consider the intent of the exemption provided in the Indian
Act and the principles set forth by the Supreme Court in Mitchell
and Williams, above.
[27]
The intended
purpose of the exemption provided at paragraph 87(1)(b) of the Indian
Act was explained in the following manner by Justice La Forest in Mitchell, above, at paragraphs
86 and 88:
… The
exemptions from taxation and distraint have historically protected the ability
of Indians to benefit from this property in two ways. First, they 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. Secondly, the protection
against attachment ensures that the enforcement of civil judgments by
non-natives will not be allowed to hinder Indians in the untrammelled enjoyment
of such advantages as they had retained or might acquire pursuant to the
fulfillment by the Crown of its treaty obligations. In effect, these sections
shield Indians from the imposition of the civil liabilities that could lead,
albeit through an indirect route, to the alienation of the Indian land base
through the medium of foreclosure sales and the like; see Brennan J.’s
discussion of the purpose served by Indian tax immunities in the American
context in Bryan v. Itasca County, 426 U.S. 373 (1976), at p. 391.
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.
[Emphasis
added]
… As is
the case with the restrictions on alienability to which I drew attention
earlier, the intent of these sections is to guard against the possibility
that Indians will be victimized by “sharp dealing” on the part of non-natives
and dispossessed of their entitlements.
[Emphasis
added]
[29]
In Williams,
above, Justice Gonthier discussed the choice that Native taxpayers have as to
how they organize their personal property and whether they situate them on or
off a reserve. At paragraph 18, he states the following:
Therefore,
under the Indian Act, an Indian has a choice with regard to his personal
property. The Indian may situate this property on the reserve, in which case
it is within the protected area and free from seizure and taxation, or the
Indian may situate this property off the reserve, in which case it is outside
the protected area, and more fully available for ordinary commercial purposes
in society. Whether 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.
[30]
At
paragraph 61, Justice Gonthier also explained how to determine the location of
intangible personal property:
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.
[Emphasis
added]
[31]
Moreover,
at paragraph 35, Justice Gonthier also stressed that each case must be decided
on its own facts:
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.
[32]
These
connecting factors were restated in Recalma, above, where this Court
identified certain factors to consider in determining the situs of
investment income. The substantive portion of the reasoning in this case was
set forth by Justice Linden at paragraph 11:
[11] So
too, where investment income is at issue, it must be viewed in relation to
its connection to the Reserve, its benefit to the traditional Native way of
life, the potential danger to the erosion of Native property and the extent to
which it may be considered as being derived from economic mainstream activity.
In our view, the Tax Court judge correctly placed considerable weight on the
way the investment income was generated, just as the Courts have done in cases
involving employment, U.I. benefits and business income. Investment income,
being passive income, is not generated by the individual work of the taxpayer.
In a way, the work is done by the money which is invested across the land. The
Tax Court judge rightly placed great weight on factors such as the residence of
the issuer of the security, the location of the issuer’s income generating
operations, and the location of the security issuer’s property. While the
dealer in these securities, the local branch of the Bank of Montreal, was on a
Reserve, the issuers of the securities were not; the corporations which offered
the Bankers’ Acceptances and the managers of the Mutual Funds in question were
not connected in any way to a Reserve. They were in the head offices of the
corporations in cities far removed from any reserve. Similarly, the main income
generating activity of the issuers was situated in towns and cities across Canada and around
the world, not on Reserves. In addition, the assets of the issuers of the
securities in question were predominantly off Reserves, which in case of
default would be most significant.
[Emphasis
added]
[33]
Recalma, above, was followed by this
Court in Lewin, above, and in Sero v. Canada, 2004 FCA 6 (Sero).
Recalma is now the leading authority on the question of whether
section 87 can exempt certain investment income from tax (see Sero
at paragraph 16).
[34]
However,
the appellant is attempting to distinguish the relevant case law on
section 87 from the case at bar. In particular, it submits that Lewin,
above, which also dealt with investment income from the Caisse du Village
Huron, must be distinguished. According to the appellant, several connecting
factors were not present in that case; among other things, Mr. Lewin did
not reside on the reserve, the original capital investment had been constituted
from work done off the reserve, and the interest paid to Mr. Lewin did not
contribute to preserving the traditional way of life of Native people living on
the reserve. Conversely, the appellant alleges that in its case, all but one of
the factors relied on by the Tax Court of Canada in Recalma v. Canada
(1996), 96 D.T.C. 1520, show a connection between the reserve and the
investment income.
[35]
The state
of the law on the issue of taxation of Indians’ investment income is currently
well established. I am persuaded that there is no essential distinction between
this case and the decisions of this Court in Recalma, Lewin and Sero,
above. In my opinion, the factual distinctions that the appellant is trying to
rely on are immaterial.
[36]
When an
Indian invokes paragraph 87(1)(b) of the Indian Act to
obtain a tax exemption on his or her investment income, and the income in
question is generated off the reserve, the exemption cannot be granted. In such
a context, the other connection factors are of little importance. In
particular, the mere fact that the financial institution is situated on the
reserve merits little weight. What matters is 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, if all or part of the funds were invested in the general mainstream of
the economy, the taxation exemption provided at paragraph 87(1)(b)
of the Indian Act cannot apply.
[37]
In Recalma,
above, Justice Linden implies at paragraph 14 of his reasons that “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”. However, that is not so in this case, and accordingly,
we do not have to rule on such a question. It is important to recall that, as Justice La Forest emphasized in Mitchell, the
intent of the exemption provided at section 87 of the Indian Act is not
to allow Indians to acquire and deal with property situated outside the reserve
on better terms than other Canadians.
[38]
Moreover,
in my opinion, the recent decision of this Court in Horn v. Canada (Minister
of National Revenue), 2008 FCA 352, dated November 12, 2008, which was
brought to the Court’s attention on December 4, 2008, after its judgment was
reserved, is of no use to the applicant. Horn deals with employment
income, not investment income, and does not in the least change the analysis of
the connection factors that the Court must carry out.
[39]
Accordingly,
I find no error in the judge’s decision to give considerable weight to the fact
that Caisse du Village Huron was investing its funds in the economic
mainstream.
[40]
Furthermore,
like the trial judge, my view is that the appellant’s arguments based on the Civil
Code are of no assistance with respect to the analysis that must be performed
to determine the situs of the investment income.
[41]
In
fact, contrary to the appellant’s allegations, there is no question that the
agreements reached between Caisse du Village Huron and the third-party
financial institutions are highly relevant, seeing as it is the situs of
investment income that is at issue under section 87 of the Indian Act. As
a result, it is impossible to ignore the fact that the investment income was
generated in the economic mainstream.
Disposition
[42]
For these
reasons, I would dismiss the appeal, with
costs.
“M. Nadon”
Certified
true translation
Sarah
Burns
PELLETIER J.A. (CONCURRING
REASONS)
[43]
I
agree with the reasons articulated by my colleague Justice Nadon, but I would
add the following to his remarks.
[44]
In
Recalma v. Canada (1998), 98 D.T.C. 6238, Justice Linden acknowledged
the possibility that in some circumstances, particularly when “funds invested
directly or through banks on reserves are used exclusively or mainly for loans to
Natives on reserves”, investment income could be exempt from taxation. This
factor was only one of several in his analysis, but he gave it more weight than
the others.
[45]
Perhaps
there was once a time when caisses populaires set themselves apart from other
financial institutions by virtue of their limited activities and the common
link that existed between members, but that is no longer the case. As
shown by the evidence in this case, caisses populaires are no longer limited as
to their geographical and financial operations. The
fact that they belong to a group means that they participate fully in the
capital market to the extent that their cash requirements permit or surplus
funds demand.
[46]
Additionally,
as events in recent months have shown, the capital market is a global market. While
the sources of the capital put on the market are local and the projects in
which that capital is invested are local, the fact remains that the market
itself is global. Investors can access that
market from their own communities, but the point of entry does not, in itself,
limit the market in which investors make profits and incur losses.
[47]
I
therefore conclude that in the case of the investment of capital through a
financial institution, including a caisse populaire, the weightiest factor in
determining the situs of the investment income is the nature of the
capital market itself, which is not limited to a reserve, a province or even a
country.
[48]
I
would therefore dismiss the appeal as my colleague Justice Nadon proposes.
“J.D. Denis Pelletier”
“I
agree.”
Pierre Blais J.A.
Certified
true translation
Sarah
Burns
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