Her Majesty the Queen v. The National Indian Brotherhood, [1978] CTC 680, 78 DTC 6488

The Associate Chief Justice:—This is an appeal from a judgment of the Tax Review Board which allowed an appeal from assessments for the years 1970, 1971 and 1972. The assessments were not of income tax but of penalties and amounts for which, in the view of the Minister of National Revenue, the defendant had become liable in respect of its failure in some cases to deduct and in others to pay over to the Receiver General for Canada amounts which the defendant was required by the Income Tax Act (RSC 1952, c 148 as amended) and Regulations to deduct from the salaries of its Indian employees and to pay over on account of their liability for tax.

There is no dispute as to any of the amounts. What is in issue is whether the defendant was required by the Act and Regulations to make such deductions from the salaries of such employees and pay them over to the Receiver General.

The defendant is a non-profit organization incorporated under the Canada Corporations Act (RSC 1970, c C-32) and made up of representatives of the Indian communities of the Provinces and Territories. Its head office is at Ottawa but its activities are carried on throughout Canada. Its membership and its executive council are made up entirely of Indians. Its objects, in summary, are to assist and represent the Indian people in working out solutions to the problems facing them and to assist in retaining the Indian culture and values. Funds to carry on its activities are for the most part provided by grants from one or more departments of the Government of Canada. In carrying on its activities, the defendant employs a number of persons, some of whom are Indians and some not. No problem arises as to the employees who are not Indians. It arises only with respect to employees who have status as Indians under the Indian Act (RSC 1970, c I-6).

These are all persons who resided on Indian reserves before taking up employment with the defendant and there is evidence that, on termination of their employment, they would return to their reserves. In some, if not all, cases they would, during their employment, maintain a dwelling on the reserve. Their duties were carried out both at Ottawa and elsewhere, both on and off reserves in all parts of Canada, but on taking up their employment, they would, at least temporarily, establish a place of residence in or near Ottawa.

The defendant’s position is that these employees were exempt under the Indian Act from income tax in respect of their salaries as employees of the defendant and that the defendant was not obliged to deduct or remit payments in respect of their salaries. The Crown’s position is that the employees were not exempt and that in any event the defendant was obliged under the Income Tax Act to make and remit the deductions, the right to exemption, if any, being a matter for the individual Indian employee to raise and establish, if necessary, by appeal from the assessment of his or her tax. This position, if sound, would make it unnecessary to deal with the right to exemption in the present appeal but, as the exemption was the principal subject of the argument and as counsel for the Crown as well as for the defendant sought a decision on it, even though the decision would not be binding on the individual Indian employees, who might raise it again on their own appeals from assessments, I shall deal first with that aspect of the matter on the assumption that, if the individual Indian employees were exempt, the defendant was justified in not making and remitting deductions.

The basis for the defendant’s submission that the Indian employees were exempt is section 87 of the Indian Act. It provides:

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; and no succession duty, inheritance tax or estate duty is payable on the death of any Indian in respect of any such property or the succession thereto if the property passes to an Indian, nor shall any such property be taken into account in determining the duty payable under the Dominion Succession Duty Act, being chapter 89 of the Revised Statutes of Canada, 1952, or the tax payable under the Estate Tax Act, on or in respect of other property passing to an Indian.

This exempts from federal, provincial and municipal taxation both the property of an Indian situated on a reserve and the Indian as well in respect of his property situated on a reserve. But it is to be observed that, whether the taxation is on property or on an individual in respect of property (save as provided in respect of the Dominion Succession Duty Act and the Estate Tax Act—which need not be considered in the present context), it is only with respect to property that is situated on a reserve that the exemption applies. It is also to be observed that, while the Dominion Succession Duty Act and the Estate Tax Act, both of which were federal taxation statutes, are specifically mentioned, no other federal taxation statute is specifically mentioned.

The exemption is somewhat expanded by section 90 which provides:

90. (1) For the purposes of sections 87 and 89*, [1] 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.

(2) Every transaction purporting to pass title to any property that is by this section deemed to be situated on a reserve, or any interest in such property, is void unless the transaction is entered into with the consent of the Minister or is entered into between members of a band or between the band and a member thereof.

(3) Every person who enters into any transaction that is void by virtue of subsection (2) is guilty of an offence, and every person who, without the written consent of the Minister, destroys personal property that is by this section deemed to be situated on a reserve, is guilty of an offence.

The presence of section 90 in the Statute is in itself an indication (if any were needed) that section 87 is intended to be interpreted according to the ordinary meaning of the words and expressions used in it and that, save as expanded by section 90, the exemption is no broader than what naturally falls within that meaning*. [2]

The defendant’s first submission was that the case fell within section 90. It was not suggested that it could be within paragraph 90(1 )(b) but it was suggested that, as the funding of the defendant’s operation was largely provided from appropriations by Parliament for the use and benefit of Indians, paragraph 90(1)(a) applied to the salaries of the defendant’s Indian employees so as to deem them to be property situate on a reserve, from which it would follow that the individual Indian would be exempt from taxation in respect of his salary. Counsel relied on The Queen v Greyeyes, [1978] CTC 91; 78 DTC 6043 but I do not think the case is helpful as it was decided on paragraph 90(1)(b) and it had been agreed that the amount of the scholarship or grant which the Minister sought to bring into the computation of the recipient’s income for tax purposes was given to the recipient pursuant to an agreement and treaty between the recipient’s Band and “Ottawa” [s/c].

In my opinion, it is not possible to regard the salaries here in question as “personal property that was purchased by Her Majesty” within the meaning of paragraph 90(1)(a) and I am unable to accept counsel’s Submission that the paragraph should be interpreted as if it read “personal property that was . . . moneys appropriated by Parliament” as I think that grammatically the words “purchased by Her Majesty with” govern the whole of the remainder of the paragraph. The provision therefore cannot apply.

The defendant’s second submission was that, whether or not subsection 90(1) applied, section 87 applied to exempt the Indian employees from tax in respect of their salaries. Counsel’s contention, as I understand it, was that, even though the defendant’s head office was in Ottawa and the employees resided here or near there while employed by the defendant, their work and the activities of the defendant on behalf of Indians and Indian culture should be regarded as an extension of Indian community life and as carried on on a reserve, and that in this situation the right of the Indian employees to their salaries should be regarded as personal property of such Indian employees situate on the reserve from which the individual employee came and to which, following the termination of his employment, he would return.

I have already indicated that it is my view that the exemption provided for by subsection 87 does not extend beyond the ordinary meaning of the words and expressions used in it. There is no legal basis, notwithstanding the history of the exemption, and the special position of Indians in Canadian society, for extending it by reference to any notional extension of reserves or of what may be considered as being done on reserves. The issue, as I see it, assuming that the taxation imposed by the Income Tax Act is taxation of individuals in respect of property and that a salary or a right to salary is property, is whether the salary which the individual Indian received or to which he was entitled was “personal property’’ of the Indian “situated on a reserve’’.

This, as it seems to me, must be considered in respect of salary to which the individual Indian was entitled before and up to the time when it was paid. After payment it loses its character as salary and is just so much money in the recipient’s hands. Even if the Indian took the money forthwith to a reserve and left it there, its situs as salary, when it was salary, would not be affected. The question then is whether the salaries here in question, which were paid to the employees in Ottawa by cheque drawn on an Ottawa bank by a corporation with its head office in Ottawa and resident there, can be regarded as situate on a reserve, that is to say, the reserve of the individual Indian entitled to the salary.

A chose in action such as the right to a salary in fact has no situs. But where for some purpose the law has found it necessary to attribute a situs, in the absence of anything in the contract or elsewhere to indicate the contrary, the situs of a simple contract debt has been held to be the residence or place where the debtor is found. See Cheshire, Private International Law, seventh edition, 420 et seq.

In Commissioner of Stamps v Hope, [1891] AC 476 at 481, Lord Field, speaking for the Privy Council, said:

. . . Now a debt per se, although a chattel and part of the personal estate which the probate confers authority to administer, has, of course, no absolute local existence; but it has been long established in the Courts of this country, and is a well-settled rule governing all questions as to which Court can confer the required authority, that a debt does possess an attribute of locality, arising from and according to its nature, and the distinction drawn and well settled has been and is whether it is a debt by contract or a debt by specialty. In the former case, the debt being merely a chose in action— money to be recovered from the debtor and nothing more—could have no other local existence than the personal residence of the debtor, where the assets to satisfy it would presumably be, and it was held therefore to be bona notabilia within the area of the local jurisdiction within which he resided; but this residence is of course of a changeable and fleetng nature, and depending upon the movements of the debtor, and inasmuch as a debt under seal or specialty had a species of corporeal existence by which its locality might be reduced to a certainty, and was a debt of a higher nature than one by contract, it was settled in very early days that such a debt was bona notabilia where it was “conspicuous,” ie, within the jurisdiction within which the specialty was found at the time of death: see Wentworth on the Office of Executors, ed 1763, 45, 47, 60 [sic].

In New York Life Insurance Co v Public Trustee, [1924] 2 Ch 101 at 113, Atkin, LJ put the matter thus:

The question as to the locality, the situation of a debt, or a chose in action is obviously difficult, because it involves consideration of what must be considered to be legal fictions. A debt, or a chose in action, as a matter of fact, is not a matter of which you can predicate position; nevertheless, for a great many purposes it has to be ascertained where a debt or chose in action is situated, and cartain rules have been laid down in this country which have been derived from the practice of the ecclesiastical authorities in granting administration, because the jurisdiction of the ecclesiastical authorities was limited territorially. The ordinary had only a jurisdiction within a particular territory, and the queston whether he should issue letters of administration depended upon whether or not assets were to be found within his jurisdiction, and the test in respect of simple contracts was: Where was the debtor residing? Now, one knows that, ordinarily speaking, according to our law, a debtor has to seek out his creditor and pay him; but it seems plain that the reason why the residence of the debtor was adopted as that which determined where the debt was situate was because it was in that place where the debtor was that the creditor could, in fact, enforce payment of the debt. I think that is a very material consideration. The result is that in the case of an ordinary individual by that rule for a long time the situation of a simple contract debt under ordinary circumstances has been held to be where the debtor resides; that being the place where under ordinary circumstances the debt is enforceable, becaus it is only by bringing suit against the debtor that the amount can be recovered.

The decision of Collier, J in Snow v The Queen [1978] CTC 480; 78 DTC 6335, and of the case which he followed, ie, Petersen v Cree and CPR (1941), 79 Que CS1, appear to me to proceed on that rule. Avery v Cayuga (1913), 13 DLR 275; (1913), 28 OLR 517, as well, proceeds on that rule. There, a deposit belonging to an Indian resident on a reserve in a bank not situated on a reserve was held to be not situated on the reserve, Meredith, CJO saying at 276:

That the deposit is property situate outside of the reserve, within the meaning of section 99, seems not to be open to question: Commissioner of Stamps v Hope, [1891] AC 476, 481-2; Lovitt v The King, 43 Can SCR 106; The King v Lovitt (1911), 28 Times LR 41.

There are expressions of opinion to the contrary in Armstrong Growers’ Association v Harris, [1924] 1 DLR 1043, and Crepin v Delorimier et al (1930), 68 Que CS 36, but I do not think they can prevail over the authorities cited.

As the salaries in question of the individual Indians until paid were simple contract debts owed by a corporation not resident on a reserve, it is my view that they were not “situated on a reserve’’ within the meaning of subsection 87(1).

It follows from this conclusion that the alleged exemption does not apply, and it is therefore unnecessary to deal with the question whether the defendant was required, in any event, by the Income Tax Act to make deductions and pay them over to the Receiver General.

The appeal will be allowed and the assessments will be restored. As the proceedings were in the nature of a test and the Crown has not asked for costs, no costs will be awarded.