Reine Laine v. Minister of National Revenue, [1990] 2 CTC 2025, 90 DTC 1485

Tremblay, T.C.J.:— This appeal was heard on December 9, 1988 in Quebec City, Quebec.

1. The Point at Issue

The point at issue is whether the appellant, an Indian within the meaning of the Indian Act, who is employed by the Commission des écoles catholiques de Québec (CECQ), is entitled not to include in her income for the 1982 taxation year that part of her salary relating to vacation days and sick leave. The appellant argues that this portion of her salary is income earned on the Indian reserve and is therefore not taxable, even though this income was paid by an employer whose place of business is off the reserve. The appellant lives on the Village des Hurons reserve. The amount of income tax at issue is on the order of $945.

The respondent, who included all the income received from the CECQ, argues that all of this income was earned by the appellant off the reserve and must therefore be included in her income.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent's assessments are incorrect. This burden of proof results from several judicial decisions, including the judgment by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486, [1948] C.T.C. 195; 3 D.T.C. 1182.

3. The Facts

3.01 During 1982 and thereafter, the appellant was and is still registered as an Indian within the meaning of the Indian Act and resided on the Village des Hurons reserve.

3.02 During the 1982 taxation year, the appellant was employed by the Commission des écoles catholiques de Québec. Her total income was $22,189.72.

3.03 The appellant argues that the portion of her salary that relates to vacation days and sick leave represents income earned on the reserve, and is therefore not taxable.

3.04 She argues that this non-taxable portion amounts to $4,846.06, as set out in her income tax return (Exhibit 1-1), as follows:

There were 365 days in 1982.

Deduct:	—	52
— Saturdays
— Sundays	—	52
Number of working days in the year — 261 days
number of days on the reserve xX salary: non-taxable portion
number of working days
57 x 22,189.72:		4,846.03
261
Salary received in 1982—		$22,189.72
Less non-taxable portion—		$ 4,846.
Equals taxable portion—		$17,343.69

3.05 A letter dated March 28, 1983 was issued by the CECQ stating that the appellant, “during 1982, spent 57 days, or the equivalent of 21.84 per cent of the time worked, on the Village des Hurons Indian Reserve" (Exhibit 1-1).

3.06 The appellant spent these 57 days on the reserve.

3.07 The CECQ headquarters is located at 1460 chemin Sainte-Foy, Quebec City. The appellant performed her work at 1201 de la Pointe-aux-Lièvres Nord, Quebec City. Her work was connected with the organization of elective courses for students in secondary 3, 4 and 5.

3.08 The appellant was covered by the collective labour agreement then in effect.

3.09 Richard Picard, an Indian from the Village des Hurons who works for the Department of Indian and Northern Affairs Canada as a consultant to the Huron Nation, testified that the income for the time during which he works on an Indian reserve is not taxed. An official document issued by his employer (Exhibit A-1) shows that in 1987 he spent 45.25 hours working on various Indian reserves.

4. Law-Cases at Law-Analysis

4.01 Law

The Income Tax Act does not refer to Indians specifically, but paragraph 81(1)(a) exempts from income "an amount that is declared to be exempt from income tax by any other enactment of the Parliament of Canada”.

Section 87 of the Indian Act provides as follows, inter alia:

87. Notwithstanding any other Act of the Parliament of Canada or any Act of the legislature of a province, but subject to subsection (2) and to section 83, the following property is exempt from taxation, namely:

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

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

and no Indian or band is subject to taxation in respect of the ownership, occupation possession or use of any property mentioned in paragraph (a) or

(b) or is otherwise subject to taxation in respect of any such property; .. . .

The following Orders under the Financial Administration Act will be cited in the analysis if necessary:

Indian Remission Order, SI/85-144, 21 August 1985, [1985] 119, Canada Gazette Part II, 3610;

Indian Remission Order, SI/88-74,11 May 1988, [1988] 122, Canada Gazette Part II, 2459.

4.02 Cases at law and authorities

The Court has considered the following cases at law and authorities:

A. Cases at law

1. The Queen v. National Indian Brotherhood, [1979] 1 F.C. 103; [1978] C.T.C. 680; 78 D.T.C. 6488;

2. Greyeyes v. The Queen, [1978] C.T.C. 91 (F.C.T.D.); 78 D.T.C. 6043;

3. Harel v. D./M.N.R. (Quebec), 1 S.C.R. 851; [1977] C.T.C. 441; [1978] 77 D. T.C. 5438;

4. Nowegijick v. The Queen, [1983] 1 S.C.R. 29; [1983] C.T.C 20; 83 D.T.C. 5041;

5. Snowy/. The Queen, [1979] C.T.C. 227 (FCA); 79 D.T.C. 5177;

6. Petersen v. Cree et al. (1941), 79 C.S. 1;

7. Avery v. Cayuga (1913), 13 D.L.R. 275 ; 5 O.W.N. 471 (Ont CA);

8. Henry v. M.N.R., [1987] 2 C.T.C. 2013; 87 D.T.C. 338 (TCC on appeal);

9. Horn v. M.N.R., [1989] 1 C.T.C. 2208; 89 D.T.C. 147;

B. Authorities

10. Cheshire and North, Private International Law, 10th edition, pages 536 et seq;

11. J-G Castel, Canadian Conflict of Laws, 2nd edition, Toronto, Butterworths, 1986, pages 399-404;

12. Interpretation Bulletin IT-62, August 18, 1972.

4.03 Analysis

4.03.1 The issue that emerges from the evidence is therefore whether or not the income for the 57 days (vacation, holidays and sick leave) is taxable, given that the appellant spent these 57 days on the reserve (paras 3.04, 3.05, 3.06), and therefore whether this was income earned on the reserve.

4.03.2 Appellant's argument

In the Nowegijick case (para 4.02(4)), the Supreme Court decided that the salary of an Indian working outside a reserve for an employer whose place of business is on a reserve is not taxable. The situs of the salary is that of the debtor, and the debtor, that is, the employer, in this case, is on the reserve and so the salary is not taxable.

4.03.3 The Indian Remission Order, SI/85-144 (para 4.01) provides that the salary of an Indian working on a reserve for an employer located off the reserve is exempt from income tax for the 1983, 1984 and 1985 taxation years.

The Indian Remission Order, SI/88-74 (para 4.01) extends the application of the exemption set out in the Order SI/85-144 to 1986 and 1987.

4.03.4 Counsel for the appellant argued that since during the 57 days in issue the appellant was on the reserve, [Translation] "this was therefore salary received on a reserve" (NS, p 14). Counsel for the appellant also made the following comments:

[Translation]

I would like to note that nevertheless, even when Ms Lainé was on vacation at her home, on the reserve, nonetheless it was salary that she received on the reserve. She is on duty not at her employer's place of business, because she is on vacation, but she is on duty, in quotations, according to the collective agreement, for the rest period provided in the collective agreement, and so at home. We therefore submit that this is salary received on a reserve.

Counsel referred to the Nowegijick case (para 4.02(4)) in which the Court said at page 23 (D.T.C. 5043; S.C.R 34) that in income tax matters "the liability is at the point of receipt", and then refers to section 5(1) of the Income Tax 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.

[Emphasis added.]

4.03.5 With respect to the construction of the exemption provided in section 87 of the Indian Act, cited above, Dickson, J. of the Supreme Court made the following comments, in the Nowegijick case (para 4.02(4)), at page 23 (D.T.C. 5044; S.C.R. 36):

It is legal lore that, to be valid, exemptions to tax laws should be clearly expressed. It seems to me, however, that treaties and statutes relating to Indians should be liberally construed and doubtful expressions resolved in favour of the Indian. If the statute contains language which can reasonably be construed to confer tax exemption that construction, in my view, is to be favoured over a more technical construction which might be available to deny exemption. In Jones v Meehan, 175 US 1 [1899], it was held that “Indian treaties must be construed, not according to the technical meaning of their words, but in the sense in which they would naturally be understood by the Indians”.

Counsel for the appellant submits, relying on this passage, that the result of a reasonable construction would be to allow this appeal, particularly since the Department of National Revenue, in Interpretation Bulletin IT-62, applies the policy of not taxing income earned on the reserve, even if the employer has its offices off the reserve, as in the case of the witness Richard Picard (para 3.09).

4.04 Respondent's argument

4.04.1 Counsel for the respondent began his argument by listing the six propositions on which he based his submission that the appeal should be dismissed. They are as follows:

[Translation]

1. An Indian’s salary may, in certain circumstances, be exempt from income tax because of the Indian Act (see the Nowegijick case).

2. In each case, it is important to determine whether the salary in question is the personal property of the Indian situated on an Indian reserve.

3. In order to determine whether a debt consisting of a salary is situated on an Indian reserve, the place of residence of the employer, who owes the salary (or other type of contractual debt), must be considered.

4. In this appeal, the place of residence of the CECQ, the employer and the debtor of the amounts in question, was in a place situated off an Indian reserve. Accordingly, the amounts in question were in fact the personal property of an Indian, situated off a reserve, and therefore they were subject to income tax.

5. Even if in certain cases the place where the services were performed (that is, on the reserve) has been considered with the result that the salary received is exempt from income tax, in this appeal the amounts in question are subject to income tax because the duties performed by the appellant were performed off an Indian reserve.

6. The Indian Remission Orders, SI/85-144 and SI/88-74 (para 4.01) apply to 1983 and 1987 but not to 1982, which is the appellant's taxation year in issue.

4.04.2 Counsel for the respondent reviewed the Nowegijick case (para 4.02(4)), as did counsel for the appellant (para 4.03.2); he then quoted Dickson, J. (page 22 (D.T.C. 5042-43; S.C.R. 33-34)) who, after citing section 87 of the Indian Act, made the following comments which are very much on point:

Further distilled, the section provides that (i) the personal property of an Indian situated on a reserve is exempt from taxation; (ii) no Indian is subject to taxation "in respect of any" such property.

It is arguable that the first part of the quoted passage which exempts from taxation (a) the “interest of an Indian or a band in a reserve or surrendered lands” and (b) the "personal property of an Indian or band situated on a reserve", is concerned with exemption from direct taxation of land or personal property by a provincial or municipal authority. The legislative history of the section lends support to such an argument. But the section does not end there. It is to the latter part of the section that our attention should primarily be directed.

The short but difficult question to be determined is whether the tax sought to be imposed under the Income Tax Act, 1970-71-72, c 63 upon the income of Mr Nowegijick can be said to be “in respect of any" personal property situated upon a reserve.

We need not speculate upon parliamentary intention, an idle pursuit at best, since the antecedent of section 87 of the Indian Act was enacted long before income tax was introduced as a temporary war-time measure in 1917.

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, ACJ in R v. National Indian Brotherhood, [1979] 1 FC 103 particularly at pp 109 et seq.

With respect to the situs of the debt, counsel for the respondent cited Cheshire and North in Private International Law (para 4.02(10)) at length, and the decision of Dickson, J. in the National Indian Brotherhood case (para 4.02(1)), referred to above. On the same lines, he also cited Snow (para 4.02(5)), Petersen (para 4.02(6)) and Avery (4.02(7)).

By thus applying the test of the situs of the debtor, that is, the employer, in order to determine the situs of the salary, counsel for the respondent thus suggests that in this case the situs of the appellant's salary is off the reserve and is therefore taxable.

4.04.3 Counsel for the respondent cited paragraph (g) and subparagraph (h)(i) of Interpretation Bulletin IT-62 (para 4.02(12)), which reads as follows:

(g) The key factor in determining whether or not a specific item of income received by an Indian is taxable or exempt is the location where the income is earned. Income earned on a reserve by an Indian is considered exempt. Income earned away from the reserve is taxable.

(h) Different types of income have different criteria for establishing whether they are on or off the reserve. Some of the types of income may be classified as follows:

(i) Salary and wages are considered to be earned where the services are performed. For an office worker this is the office at or out of which his duties are performed; for a construction worker employed on a project it is the job-site; for a teacher it is the school and so on. The principal office of his employer, the location where he is paid or from which the pay is issued are not usually relevant in determining the location of income from an office or employment. In some cases it will be found that employment is partly on and partly off the reserve. In these cases a reasonable allocation must be made between exempt and taxable income, based on the facts of the particular case.

[Emphasis added.]

The underlined passages indicate the portions on which counsel relied.

Counsel argued that the appellant did no work on the reserve during the 57 days of vacation, holidays and sick leave. She was specifically relieved of working during those days under the collective agreement.

Accordingly, neither the Act nor the Remission Orders can apply to this case, even if they had been in effect for 1982. The Remission Order actually applies only in so far as the Indian performed his or her work on the reserve.

4.05 The Court agrees with the argument and conclusion presented by counsel for the respondent.

However, we should return to the argument of counsel for the appellant (para 4.03.4), that is, that when the appellant receives her salary for the 57 days in issue she is still on duty, in quotations, under the collective agreement, and so at home. (Translation) "We therefore submit that this is salary received on a reserve."

Even though they are part of the contract of employment, the 57 days of vacation and so on must be considered as secondary (even though they are necessary secondary considerations) in relation to the days of work, which are primary. An employer does not hire an employee in order to give her vacation and sick leave. An employer hires an individual first for the work that she is going to do. Vacation and sick leave only exist because there are working days. The number of working days (like the number of years worked) is even the criterion for determining the number of days of vacation and sick leave. In short, the reason the appellant was given the 57 days, during which she was relieved of working, was because she worked.

The fact that these days were spent on the reserve does not change the situs of the work, where she in fact performed that work. The primary governs the secondary, or the secondary, the 57 days in issue, follows upon the primary, the 204 days of work (para 3.04), the situs of which is situated off the reserve. In my view, the fundamental principles "Major pars trahit ad se rninorem" and "Accessorium sequitur principale" apply here.

4.06 In the recent decision in Horn (para 4.02(9)), Judge Lamarre-Proulx of the Tax Court of Canada dismissed the appeal by the appellant, who also claimed an exemption for salary received in respect of vacation and sick leave days.

In that case, however, there was a factor not present in this appeal. The appellant did not reside on the Caughnawage reserve, but rather in Ottawa.

The judge relied on fundamentally the same reasons as the respondent submitted in this appeal with respect to the situs,

5. Conclusion

The appeal is dismissed for the reasons in the foregoing judgment.

Appeal dismissed.