Mary F. Kirkness, Mina Sinclair and John Wavey v. Minister of National Revenue, [1991] 2 CTC 2028

Beaubier, T.C.J.:—These appeals were heard, by consent, on common evidence at Winnipeg, Manitoba, on February 20 and 21, 1991. They pertain to the 1984, 1985 and 1986 taxation years for each of the appellants. In each year, the appellants were employed by the Government of Canada, and were paid through Parliamentary appropriations to the Department of Health and Welfare Canada for employment at the Split Lake Nursing Station operated by the Department of National Health and Welfare Canada and situated a few hundred yards outside the legal boundary of Split Lake Indian Reserve #171 in Northern Manitoba.

In 1987, by notices of reassessment, the Department of National Revenue Canada included in each appellant's income that employment income earned as a result of employment at the Split Lake Nursing Station. These reassessments have been appealed by each of the appellants and are the subject matter before the Court.

It should be noted that prior to 1987, none of the appellants paid income tax on such income although all were employed by the Department of Health and Welfare Canada at the nursing station in prior years and Mrs. Kirkness specifically stated that she had completed forms provided to her by her employer which exempted her from the payment of income tax.

Each appellant is a status treaty Indian who at all times pertaining to this appeal resided on the Split Lake Indian Reserve #171. Mr. Wavey is a caretaker, Mrs. Kirkness is a clerk, and Mrs. Sinclair is a housekeeper at the Split Lake Nursing Station, which is situated on land owned by the Government of Canada. Title to the land beneath the Split Lake Nursing Station is described in Exhibit R-3 as in the name of Her Majesty The Queen in Right of Canada and consists of the West Half of the East Half of Lot 2 in Group 523 at Split Lake in Townships 83 and 84, in Range 9, East of the Principal Meridian in Manitoba and is so registered at the Portage Land Titles Office. In addition, there are two wedge shaped portions of land adjoining the title already described which are also registered at the Portage Land Titles Office in the name of Her Majesty The Queen in Right of Canada. The reserve itself is not registered in a land titles office of the Province of Manitoba. Rather, the reserve is registered under the provisions relating to the Department of Indian Affairs and Northern Development by virtue of Instrument No. 15930, OC-PC 2119, as shown in Exhibit R-4.

Each appellant resides on the Split Lake Indian Reserve and either walks or drives to work at the nursing station. The longest time that it takes for anyone to get there is approximately 20 minutes by walking. Each works a full work week at the station. Each is required, on account of a duty related to his or her job description, to spend some time on the Indian reserve in the course of employment during each week and, depending on the duties of the individual appellant, this occurs up to a maximum of approximately two hours on a given day. However, the great majority of duties are performed on a daily basis at the nursing station itself which is a substantial enterprise containing in excess of 20 rooms. The Department of National Health and Welfare Canada also employs three or four professional nurses at the nursing station and hires doctors and a dentist to come in during the course of each month for the purpose of providing medical care to those who visit the station. The nurses have residential facilities in the station itself and there is a residential unit for the visiting doctor or dentist contained in the station. The Split Lake Indian Reserve has a population of approximately 1,800 people who are provided with medical services at the Split Lake Nursing Station. It was established in evidence that the Split Lake Nursing Station also provides medical care services to people who are not Indians. There are also nursing stations in the Province of Manitoba operated by the Manitoba Government, and the Governments of Manitoba and Canada have formally agreed that each will provide full services to Indians and to non-Indians without discrimination at each station no matter which Government operates the station. It was established in evidence that the provision of services to non-Indians at the Split Lake Nursing Station was exceptional.

Mr. Wavey received his employment cheque from the Department of Supply and Services Canada by deposit at his bank in Thompson, Manitoba, which is approximately 150 kilometres from the Split Lake Nursing Station. Mrs. Kirkness and Mrs. Sinclair received their employment cheques which are issued to them by the Department of Supply and Services Canada by delivery of those cheques to them at the Split Lake Nursing Station itself.

The evidence also established that the income paid to each appellant was appropriated by Parliament under a general requisition for funds budgeted for by the Department of Health and Welfare. None of the money so paid was paid by the Government of Canada pursuant to a formal treaty or agreement between the Indian band and Her Majesty The Queen. The pertinent treaty, being Treaty #5 Between Her Majesty The Queen and the Saulteaux and Swampy Cree Tribes Indians, was filed as Exhibit A-1.

Each of the appellants swore in testimony that there is no visible boundary which is apparent between the reserve and the nursing station. They also stated that until a survey by the Province of Manitoba relating to hydro development, neither they nor anyone else on the reserve had any idea where the exact formal boundary of the reserve existed and that it was generally thought that the reserve included the entire small peninsula upon which the nursing station is situated, although it was known that the Hudson Bay Store, now known as the "Northern Store” was not on reserve land. Mr. Wavey also stated that his understanding and the understanding of the band community in general fashion was that Treaty #5 provided that the Government of Canada would take care of Indians and that this included the health services provided by the nursing station.

In respect to the foregoing matters, it is to be noted that the Hudson Bay Store premises are situated south of the Indian reserve boundary on the same small peninsula as that on which the nursing station is situated. The reserve extends along the northern two-thirds of this peninsula and the privately held land appears to extend along the southern one-third of this peninsula on various lots fronting Split Lake. The only access to these lots by land is through the reserve. There is access by water from Split Lake.

All the witnesses were credible and none were evasive. Mrs. Sinclair was quite shy and had trouble giving testimony due to that fact.

Both Mrs. Kirkness and Mrs. Sinclair spend virtually all of their earnings on the reserve. Mr. Wavey goes to Thompson, Manitoba, approximately once a week, and spends money there as well as on the reserve. The road to Thompson is an all-weather road which was constructed in 1977.

The nursing station itself was built in 1954. The Split Lake Indian Reserve is situated approximately 850 kilometres north of Winnipeg, Manitoba.

The Court was invited by counsel for the appellants, in the event that the appeals were not granted, to consider the possibility of a remission order respecting the limited services each appellant performs on the Indian reserve itself as duties of employment. It is to be noted that the Tax Court of Canada can only deal with assessments. It has no jurisdiction with respect to remission orders. These may or may not be provided by the Government on specific application by a taxpayer.

The reassessment of the Minister of National Revenue is pursuant to subsection 5(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") which reads as follows:

5. (1) Subject to this Part, a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.

In response thereto, the appellants state by way of appeal that they, as status treaty Indians, are exempt from income tax in their circumstances because what is being taxed is their services which are exempt as personal property pursuant to paragraph 87(1)(b) of the Indian Act, R.S.C. 1985, c. 1-5. Subsections (1) and (2) of section 87 read as follows:

(1) Notwithstanding any other Act of the Parliament of Canada 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; .. . .

An Indian reserve is defined in section 2 of the Indian Act as follows:

"reserve" means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band;

In Gamble and Marion v. M.N.R., 83-1126(IT) and 85-593(IT) (unreported), Cardin, T.C.J. stated at page 6:

Having regard to the legal consequences that attach under the Indian Act to land that is constituted an Indian reserve, Crown land should not be regarded to have been so dedicated—at least in modern times—in the absence of clear and convincing evidence of that intention.

This Court finds that in view of the fact that "reserve" is specifically defined in the Indian Act, it cannot accept a concept that there is a “notional reserve" outside the legal boundaries of an Indian reserve and therefore the Split Lake Nursing Station is found to exist outside of Split Lake Indian Reserve #171.

A contract of employment consists of two elements: The employee contracts to supply the employer services at a place and in a manner designated by the employer. The employer contracts to pay the employee a salary or wage in return for these services. This point was discussed in the Supreme Court of Canada in periphery in relation to a contract of employment with a private corporation in Glenn A. Nowegijick v. The Queen, [1983] C.T.C. 20; 83 D.T.C. 5041 (S.C.C.) at 22 (D.T.C. 5043) when 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. See Cheshire Private International Law (10th ed.) pp. 536 et seq. and also the judgment of Thurlow A.C.J. in R. v. National Indian Brotherhood, [1979] 1 F.C. 103 particularly at pp. 109 et seq.

It should be noted in respect to the foregoing quote that Mr. Nowegijick worked off the reserve; his employer had its head and administrative office on the reserve; and he was paid by cheque at the head office of his employer on the reserve. Thus, the performance of services off the reserve was similar to the performances of services off the reserve by the appellants in respect to the assessments in question here. The Supreme Court determined that the services were not situated at the residence of the appellant, rather they were situated where they were performed, that is off the reserve.

It is also to be noted that Dickson, J. pointed out that subsection 5(1) of the Income Tax Act affixes liability for income tax at the point of receipt of income, when he stated at page 23 (D.T.C. 5043):

Subsection 5(1) of the Act is worth noting. It defines the taxpayer's income from employment as the salary, wages and other remuneration received. The liability is at the point of receipt.

[Emphasis added.]

The decision of the Supreme Court of Canada is that only one side of a contract of employment is taxed under the Income Tax Act, namely, the payment of salary or wages, that is taxed at the point of receipt. The other side of the contract of employment, namely, the delivery of services by the employee, is not in itself taxed under subsection 5(1) of the Income Tax Act.

The cheques which are paid to the appellants in this case are not paid to the appellants on the Split Lake Indian reserve. Rather, Mrs. Kirkness receives her cheque at the nursing station off of the reserve; Mr. Wavey receives his salary by way of deposit to his bank in Thompson, Manitoba; and Mrs. Sinclair receives her cheque by delivery to her at the nursing station off of the reserve. Since the cheque, being personal property, is received by the Indian off of the reserve, no exemption exists pursuant to paragraph 87(1)(b) of the Indian Act.

In any event, the decision of Dickson, J. in Nowegijick,supra, has been the subject of interpretation by the Federal Court of Appeal in Glenn Williams v. Canada, [1990] 2 C.T.C. 124; 90 D.T.C. 6399. The Federal Court of Appeal determined therein that the situs of the debt for wages was in fact the resi- dence of the debtor. In Kahn-Tineta Horn v. M.N.R., [1989] 1 C.T.C. 2208; 89 D.T.C. 147 at 2213 (D.T.C. 150), Judge Lamarre Proulx of this Court determined that the residence of the Government of Canada is Ottawa. The decisions of the Supreme Court of Canada and of the Federal Court of Appeal in the foregoing cases are binding upon this Court. This Court also accepts the reasoning of Judge Lamarre Proulx to the effect that the residence of the debtor-employer, namely the Government of Canada is Ottawa. Therefore, whether the tax liability respecting the pay and the wages is to be determined at the point of payment or at the residence of the debtor-employer, the argument of the appellants fails.

The appellants further argue that section 90 of the Indian Act deems that their services (constituting personal property) are purchased by Her Majesty The Queen with moneys appropriated by Parliament for the use and benefit of Indians or bands, or which are given to Indians under a treaty or agreement between a band and Her Majesty The Queen are deemed always to be situated on a reserve, with the result that exemption from income tax should be granted. These are contained in two arguments, the first related to paragraph 90(1)(a) and the second related to paragraph 90(1)(b). Subsection 90(1) reads as follows:

(1) For the purposes of sections 87 and 89, personal property that was

(a) purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands, or

(b) given to Indians or to a band under a treaty or agreement between a band and Her Majesty,

shall be deemed always to be situated on a reserve.

The Minister called a witness, Mr. Keith Cale, who is the Assistant Regional Director in charge of administration for the medical services branch of the Department of Health and Welfare Canada in Manitoba. Mr. Cale testified that the funding for the nursing station, and out of which funding the appellants are paid, was appropriated by Parliament pursuant to general estimates submitted by the Department of Health and Welfare. They were not appropriated by Parliament especially for the use and benefit of Indians or bands. Rather the appropriation was for the citizens of Canada generally in respect to the funding of the Department of Health and Welfare. Moreover, the nursing station in question provides services to anyone, Indian or not, who requests them from the nursing station. In contrast to the situation of the appellants, there are people employed by the band called "Community Health Representatives" who are employed by the band and who work out of the nursing station; the Government of Canada has a specific agreement with the band which funds the band in respect of the Community Health Representatives and for which the specific moneys are appropriated by Parliament.

In these circumstances, the Court finds that the services of the appellants are not exempt by virtue of paragraph 90(1)(a) since they are not purchased by Her Majesty The Queen with moneys appropriated by Parliament for the use and benefit of Indians or bands and thus, are not deemed to be situated on a reserve so as to be exempt.

Similarly, the Court finds that the services provided by the appellants are not “given to Indians or to a band under a treaty or agreement between a band and Her Majesty", pursuant to paragraph 90(1)(b) and therefore are not deemed always to be situated on a reserve so as to be exempt. In fact, the services provided by the appellants are not given to Indians or to a band. Rather, the appellants are contracted to and paid by the Government of Canada pursuant to a contract of employment for services to be rendered at the nursing station. The services are "given to” or rendered to the Department of Health and Welfare in return for a salary which is received by Mr. Wavey in Thompson, Manitoba, and by Mrs. Kirkness and Mrs. Sinclair at the nursing station. With respect to this argument, note should be given to the decision of Judge Lamarre Proulx of this Court reasoned in Kahn-Tineta Horn v. M.N.R., supra, at page 2210 (D.T.C. 148-49), that a person cannot divest oneself of skills or training. This Court agrees with that reasoning.

The appeals are therefore dismissed.

Appeals dismissed.