[2002] 1 F.C. 51
A-617-99
2001 FCA 239
Her Majesty the Queen (Appellant)
v.
David Monias (Respondent)
Indexed as: Canada v. Monias (C.A.)
Court of Appeal, Strayer, Isaac and Evans JJ.A.— Winnipeg, May 22; Ottawa, July 20, 2001.
Income Tax — Exemptions — Appeal from T.C.C. decision employment income exempt from income tax under Indian Act, s. 87(1)(b) — S. 87(1) exempting property of Indian situated on reserve from taxation — Respondent, Indian, employed by native-run Awasis Agency, established to provide social services to children, families on reserves of northern Manitoba — Chiefs electing board of directors from among themselves — Meetings held, registered office situated, respondent residing, off reserve — Respondent spending 15% of time on reserve — T.C.C. relied on nature of work performed, nature of employee, to conclude employment income situated on reserve — Preliminary observations: (1) purpose of s. 87 to protect reserve lands, Indians’ personal property thereon, from erosion, so that bands able to sustain themselves on reserves as economic, social units — If all connecting factors off reserve, more difficult to link policy underlying exemption to context — (2) Application of connecting factors test requiring consideration of nature of property, type of tax — (3) As connecting factors balanced in factual matrix, example in Revenue Canada Guidelines given little weight as facts given incomplete, not identical — Appeal allowed — Application of connecting factors test — Nature of employment requiring consideration of location of employment, nature of services, surrounding circumstances — That respondent resided off reserve, performed duties off reserve, weighed against benefits to residents of reserves from respondent’s services, identity of employer, importance of services to strengthening essential social fabric of reserves — But Awasis not benefiting reserves by providing consequential economic benefits for Band members on reserves because administration located elsewhere — Not consistent with purpose of s. 87 to conclude that on facts respondent’s employment income situated on reserve so as to exempt it from income tax.
Native Peoples — Taxation — Appeal from T.C.C. decision respondent’s employment income situated on reserve — Indian Act, s. 87(2) providing no Indian subject to taxation in respect of ownership of personal property situated on reserve — Appellant, Indian employed by Native-run agency providing social services to families on reserves in northern Manitoba — Board of directors elected by Chiefs from among themselves — Practical considerations dictating holding of board meetings off reserve — Application of connecting factors test — That respondent resided off reserve, performed duties off reserve, often at great distances from reserves, weighed against benefits to residents of reserves from respondent’s services, identity of employer, importance of services to strengthening essential social fabric of reserves — Although relatively close case, inconsistent with purpose of s. 87 to conclude respondent’s employment income situated on reserve so as to exempt it from income tax.
This was one of five related appeals from the Tax Court of Canada’s decision that the respondents’ employment income was exempt from income tax as “the personal property of an Indian situated on a reserve” for the purpose of Indian Act, paragraph 87(1)(b). The reasons herein applied to the other four related appeals. The respondent is an Indian employed by the Native-run Awasis Agency of Northern Manitoba, which was established to provide social services to children and families on the reserves of northern Manitoba. The articles of incorporation of Awasis envisioned that the agency would provide its services “within the reserves,” but it has not proved practicable for it to provide most of its services on the reserves. In the material years, Awasis served 25 bands. The chiefs of those bands elect the board of directors of Awasis from among themselves. All reside on reserves. They hold their 10 meetings a year at Thompson, Winnipeg or the town of The Pas. The registered office from which Awasis is administered, the payroll prepared and salary cheques issued, is in Thompson. None of the respondents resided on a reserve in the years in question. They performed some of their work on reserves. Mr. Monias spent 15% of his time on reserves. The appeals related to different taxation years, but Mr. Monias’ appeal related to 1992-1993. Because of an example of the availability of the section 87 exemption given in a Revenue Canada Guideline, the Crown limited its appeals to the portion of the respondents’ income that was not directly attributable to the time that they actually worked on the reserves.
Indian Act, subsection 87(1) provides that notwithstanding any other Act of Parliament, the personal property of an Indian situated on a reserve is exempt from taxation. Subsection 87(2) provides that no Indian is subject to taxation in respect of the ownership of such property. Income Tax Act, subsection 81(1) excludes from income an amount that is declared to be exempt from income by any other enactment of Parliament.
The Tax Court relied upon the nature of the work performed by the employees and the nature of the employer to conclude that the respondent’s employment income was situated on a reserve.
The issue was whether the respondent’s employment income was “situated on a reserve”.
Held, the appeal(s) should be allowed.
The Court made three preliminary observations. (1) The purpose of section 87 is not to redress generally the economic disadvantages suffered by Indians but to protect reserve lands, and Indians’ personal property on a reserve, from erosion, so that the bands are able to sustain themselves on the reserves as economic and social units. Thus, it is fully consistent with legislative policy to apply section 87 to income that is earned by Indians who reside on a reserve from work that is performed on a reserve. But if all the connecting factors are not located on a reserve, it becomes difficult to link the policy underlying the section 87 exemption to the factual context in which the employment income was acquired. (2) An application of the connecting factors test in the light of the policy underlying section 87 must have regard to the nature of the particular property and the type of tax in question. Application of the balancing factors test to determine whether tangible property is situated on a reserve must be treated with caution when intangible property is concerned. Further, the protection of reserve lands from erosion by tax lies closer to the core of section 87 than does the protection of items of individually owned personal property while they are situated on a reserve. Thus the purpose of the situs test in section 87 would seem more apposite to reserve lands than to personal property, such as employment income, which is owned by Indians individually. As to the nature of the tax, the connecting factors may not be balanced in exactly the same way for a transaction-based tax, such as sales tax, as for income tax. (3) Since the appeals must be decided by applying the Indian Act and the relevant case law to the facts, which involves balancing various connecting factors in a particular factual matrix, it would be difficult to attach much weight to an example in the Guidelines, where the facts given are neither complete nor identical to those herein.
The determination of the issue turned on the application of the connecting factors test. (a) The weight given to a particular connecting factor depends on the facts of each case, but generally the (i) location and (ii) nature of the employment and (iii) the surrounding circumstances will be important in situating an Indian’s employment income for the purpose of section 87. (i) While performance of work off reserve is an indication that the employment income is not situated on a reserve, the location of the employment is not in itself determinative. If the Minister abandoned the appeals in so far as they related to income earned while the employees were working on a reserve because he regarded location as determinative, his view of the law was incorrect. That it was impractical for the work to be performed on the reserves did not enable the Court to proceed on the basis that the employment duties had in fact been performed there. Necessity cannot locate on a reserve the performance of employment duties that were clearly performed off reserve, nor situate employment income on a reserve when the connecting factors clearly point to another location.
(ii) The principal focus of the services provided by Awasis was to support and strengthen Native families on the reserves, and to attend to the social needs of children on the reserves. But while the employees’ work may have helped to maintain and enhance the quality of life on the reserves for members of the Bands living there, it did not necessarily connect the acquisition or use of their employment income to the reserves as physical locations.
(iii) As part of the totality of circumstances in which work was performed, regard was had to the fact that it was not possible to deliver on the reserves many of the services and programmes provided by the employees of Awasis, such as counselling and court services, and that many of the necessary facilities existed only off reserve.
(b) The location of the employer has been regarded as a connecting factor, but in the absence of some evidence of the scope of the employer’s activities on the reserve, or some benefit flowing to a reserve from the presence of the employer, it is not likely to be given much weight. Awasis is closely linked to reserves through the residency and identity of its members and directors, as well as through the reason for its creation, funding, statutory status, objects and the nature of the services that it provides. However, the fact that Awasis does not conduct its business on a reserve and apparently provides no employment opportunities on reserves, pointed to an off-reserve residency and weakened the connection between the employer and the reserves for the purpose of determining the situs of the respondent’s employment income under paragraph 87(1)(b).
(c) Since the policy underlying section 87 is to protect the reserves as an economic unit for the members of the bands living there, the residence of employees can be a significant factor in determining the situs of employment income. The respondent did not reside on a reserve during the taxation years in question. But because the residency of the owner of the personal property is not part of the statutory definition of the scope of section 87, it cannot be a universal requirement.
The nature of the work performed by the respondent and the nature of the employer were closely connected with the reserves. But Awasis did not benefit the reserves by providing consequential economic benefits for Band members on the reserves, because its administration is located off reserve, albeit by necessity.
The fact that the respondent resided and performed his employment duties off reserve, often at great distances from the reserves served by Awasis, had to be weighed against the benefits to the residents of the reserves from the respondent’s services, the identity of the employer and the importance of the services to strengthening the essential social fabric of the reserves. That the work from which employment income is earned benefits Indians on reserves and may be integral to maintaining the reserves as viable social units, was not in itself sufficient to situate the employment income there.
Paragraph 87(1)(b) does not exempt from income tax Indians’ employment income that was not clearly earned in circumstances that link its acquisition to a reserve as an economic base. This was a relatively close case, but it would be difficult to justify a conclusion that the respondent acquired his employment income on the reserves served by Awasis, when he neither lived nor worked there. It would not be consistent with the purpose of section 87 to conclude that, on the facts of this case, the respondent’s employment income was situated on a reserve so as to exempt it from income tax.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Child and Family Services Act, C.C.S.M., c. C80.
Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 81(1)(a).
Indian Act, R.S.C., 1985, c. I-5, ss. 87(1)(b), 89 (as am. by R.S.C., 1985 (4th Supp.), c. 17, s. 12).
CASES JUDICIALLY CONSIDERED
applied:
Williams v. Canada, [1992] 1 S.C.R. 877; (1992), 90 D.L.R. (4th) 129; 41 C.C.E.L. 1; [1992] 3 C.N.L.R. 181; [1992] 1 C.T.C. 225; 92 DTC 6320; 136 N.R. 161; Shilling v. M.N.R., [2001] 4 F.C. 364(C.A.); Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85; (1990), 71 D.L.R. (4th) 193; [1990] 5 W.W.R. 97; 67 Man. R. (2d) 81; [1990] 3 C.N.L.R. 46; 110 N.R. 241; 3 T.C.T. 5219; Bell v. Canada, [2000] 3 C.N.L.R. 32; (2000), 2000 DTC 6365; 256 N.R. 147 (F.C.A.); Bell v. Canada (1998), 98 DTC 1857 (T.C.C.).
distinguished:
Canada v. Folster, [1997] 3 F.C. 269 (1997), 148 D.L.R. (4th) 314; [1997] 3 C.T.C. 157; 97 DTC 5315; 212 N.R. 342 (C.A.); Amos v. Canada, [2000] 3 C.N.L.R. 1; (1999), 99 DTC 5333 (F.C.A.); Desnomie v. Canada (2000), 186 D.L.R. (4th) 718; 2000 DTC 6250; 254 N.R. 58 (F.C.A.); Recalma v. Canada (1998), 158 D.L.R. (4th) 59; [1998] 3 C.N.L.R. 279; 98 DTC 6238; 232 N.R. 7 (F.C.A.); McNab v. Canada, [1992] 4 C.N.L.R. 52; [1992] 2 C.T.C. 2547 (T.C.C.).
considered:
Union of New Brunswick Indians v. New Brunswick (Minister of Finance), [1998] 1 S.C.R. 1161; (1998), 200 N.B.R. (2d) 201; 161 D.L.R. (4th) 193; 512 A.P.R. 201; [1998] 3 C.N.L.R. 295; 98 G.T.C. 6247; 227 N.R. 92.
referred to:
Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [2001] F.C.J. No. 725 (C.A.) (QL).
AUTHORS CITED
Revenue Canada. Revenue Canada Indian Act Exemptions for Employment Income Guidelines. Ottawa: Revenue Canada, 1994.
APPEAL from a Tax Court of Canada decision that the respondent’s employment income during 1992-1993 was exempt from income tax as “the personal property of an Indian situated on a reserve” under Indian Act, paragraph 87(1)(b) (Monias v. Canada (1999), 99 DTC 1021 (T.C.C.)). Appeal allowed.
APPEARANCES:
Gerald L. Chartier for appellant.
Cy M. Fien and Cary M. Reiss for respondent.
SOLICITORS OF RECORD:
Deputy Attorney General of Canada for appellant.
Fillmore Riley, Winnipeg, for respondent.
The following are the reasons for judgment rendered in English by
Evans J.A.:
A. INTRODUCTION
[1] David Monias is the respondent in this appeal, and Leona St. Denis, Beverly Robinson, Walter Spence and Karen Chevillard are respondents in the four appeals closely related to it. They are all Indians employed by a Native-run corporation, the Awasis Agency of Northern Manitoba (Awasis), which was established to provide social services to children and families on the reserves of northern Manitoba.
[2] The respondents appealed to the Tax Court of Canada against their income tax assessments for the years in dispute, on the ground that their employment income was exempt from income tax as “the personal property of an Indian situated on a reserve” for the purpose of paragraph 87(1)(b) of the Indian Act, R.S.C., 1985, c. I-5. The Tax Court allowed the appeals: Monias v. Canada (1999), 99 DTC 1021 (T.C.C.).
[3] The five appeals by the Crown (A-617-99, A-616-99, A-615-99, A-618-99 and A-619-99) from the decisions of the Tax Court were heard together on common evidence, although the facts pertaining to each respondent are not identical. The appeals raise the single issue of whether the respondents’ employment income in the relevant years was, as the Tax Court held, “situated on a reserve”.
[4] The determination of this issue turns on the application of the connecting factors test established by the Supreme Court of Canada in Williams v. Canada, [1992] 1 S.C.R. 877, and on its elaboration by this Court, most recently in Shilling v. M.N.R., [2001] 4 F.C. 364 (C.A.). Some factors tend to connect the respondents’ employment income to reserves (the nature and beneficiaries of the respondents’ work and the identity of their employer), while others (the place where the services are performed and the respondents’ place of residence, for instance) point to an off-reserve location.
[5] The reasons given in this appeal, in which Mr. Monias is the respondent, are applicable to the four related appeals, and a copy of these reasons will accordingly be inserted in each file.
B. THE FACTS
[6] Awasis was incorporated in 1984 as a child caring agency under Manitoba’s Child and Family Services Act, [C.C.S.M., c. C80] following an agreement in 1983 among the governments of Canada and Manitoba, and an organization representing the Indian chiefs of Manitoba. Awasis is funded by the federal government through the Minister of Indian Affairs and Northern Development.
[7] The origins of Awasis, and of similar organizations serving reserves in other parts of Manitoba, lie in the confusion over which level of government was responsible for providing services for children and their families on reserves, and in the unsatisfactory child welfare arrangements that had been made for reserves. Prior to 1984, the Indian agent, an employee with the Department of Indian Affairs and Northern Development, acted as a child care agency for the reserves.
[8] General by-law No. 1 of Awasis sets out its objects, which include:
(i) acting as an Indian child care agency as defined in Manitoba’s child and family services legislation and, as such, performing the relevant statutory functions and carrying out such other duties as may be directed by the Indian bands served by Awasis and communicated by the board of directors;
(ii) strengthening and unifying Indian families in general and, in particular, those living on or connected to the reserves of the bands, the chiefs of which are members of the corporation;
(iii) striving to ensure that Native children coming into its care are placed within their own communities or with other Native families in Manitoba; and
(iv) assisting in returning to their bands or families Native children who had been placed with a child care agency or family outside Manitoba.
[9] The articles of incorporation of Awasis, as well as the provincial Order in Council, envisage that the agency will provide its services “within the reserves”. However, it has not proved practicable for Awasis to provide most of its services on the reserves.
[10] The number of bands served by Awasis has fluctuated somewhat, but in the material years there were 25, spread over a large area and located in some remote places. The chiefs of the bands that Awasis serves elect the board of directors of Awasis from among themselves. All reside on reserves. Because the distances and locations involved make travel to and from many of the reserves expensive and time-consuming, and there is no suitable accommodation on most of the reserves, the board of directors of Awasis finds it practical and cost-efficient to hold its 10 meetings a year in Thompson, Winnipeg or the town of The Pas.
[11] In addition, because of the remote location of the reserves and their lack of facilities, it is not practicable to administer Awasis, or to develop new programmes and to produce materials, from a reserve. Consequently, its registered office is in Thompson, which is the largest centre of population closest to the majority of the reserves, and it is from here that Awasis is administered, the payroll is prepared and salary cheques issued.
[12] None of the respondents resided on a reserve in the years in question. Indeed, neither Ms. Chevillard, nor Ms. Robinson, has ever lived on a reserve. In the relevant years, four of the respondents, Mr. Monias, Mr. Spence, Ms. St. Denis and Ms. Chevillard, resided in Thompson and worked from Awasis’ head office there. Mr. Monias, Mr. Spence and Ms. Chevillard did their banking in Thompson at all times material to this appeal.
[13] Mr. Monias, Mr. Spence and Ms. St. Denis performed some of their work on reserves in the years in question; Ms. Chevillard, who was Awasis’ financial manager, did not. Thus, Mr. Monias, a unit supervisor and later the coordinator of Awasis’ child and family services programme, spent 15% of his time on reserves. Mr. Spence, who was first a regional services worker, and later director of programmes, spent between 5% and 10% of his time on reserves. Ms. St. Denis, who performed secretarial and clerical duties, spent 75% of her time on reserves after her appointment as senior statistical officer.
[14] The fifth of the respondents, Ms. Robinson, has lived all her life in Winnipeg, where she carried out all her employment duties from Awasis’ sub-office as the Winnipeg resource worker for independent bands and, later, as legal assistant to the general counsel of Awasis.
[15] The appeals relate to different but overlapping taxation years. The appeals of Mr. Spence and Ms. St. Denis relate to 1990-1993 inclusive; those of Mr. Monias and Ms. Robinson to 1992-1993; and the appeal of Ms. Chevillard to 1992.
[16] The Crown advised the Court that, because of an example of the availability of the section 87 exemption given in Revenue Canada Indian Act Exemptions for Employment Income Guidelines, it did not think it appropriate to pursue its appeals with respect to the portion of the respondents’ employment income attributable to the time that they spent on a reserve in the performance of their employment duties. The appeals are therefore concerned only with the portion of the respondents’ income that is not directly attributable to the time that they actually worked on the reserves. However, while the Court must treat the appeals as in part abandoned, I do not necessarily adopt the view of the law on which the Minister seems to have made this concession.
B. LEGISLATION
[17] The following statutory provisions are relevant to the disposition of this appeal.
Indian Act, R.S.C., 1985, c. I-5.
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. [Underlining added.]
Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1.
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; [Underlining added.]
C. DECISION OF THE TAX COURT
[18] After carefully setting out the facts and the arguments of the parties, the Tax Court Judge relied on the nature of the work performed by the employees and the nature of the employer, Awasis, to conclude that the respondents’ employment income was situated on a reserve. He concluded that it was not fatal to the claims that most of the services were rendered by the employees off reserve. The core of the Tax Court Judge’s reasons is found at paragraph 31, where he said:
The respective work of each of the [respondents] was performed on the instruction of an employer whose sole purpose and indeed, mandated responsibility, was to benefit Indians on their reserves. That certain of these functions could only be performed off reserve, and this includes both necessary administrative functions as well as the apprehension and provision of assistance for runaway children does not alter that fact … . Their clients, if one may refer to them as such, are mainly served on the reserve, and the services provided are done so strictly for the improvement of life on the reserve and are not in any sense ancillary services provided to reserve residents.
[19] As for the residency of Awasis, the Tax Court Judge concluded (at paragraphs 25-26) that, since the corporation’s head office, administration and board of directors’ meetings were off reserve “for sound practical and financial reasons” (paragraph 26), and it was reasonable for the chiefs to meet in Thompson, the Crown’s “emphasis on the ‘employer’s residence’ test in the particular circumstances of these appeals is misplaced” (paragraph 26).
[20] Finally, the Judge doubted whether it was appropriate to extend the benefit of section 87 to the two employees, Ms. Chevillard and Ms. Robinson, who had never lived on a reserve, and might therefore be regarded as working in the “commercial mainstream” (paragraph 23). However, he concluded that, despite this doubt, when each of the employees started to work for Awasis, their situations became identical and it would be discriminatory to refuse their section 87 claim on this ground.
D. ANALYSIS
(i) Introduction
[21] It is not necessary to repeat the general principles established by the Supreme Court of Canada for determining the situs of intangible property in order to decide whether it is “situated on a reserve” for the purpose of paragraph 87(1)(b) of the Indian Act. This Court most recently performed this exercise in the context of employment income in Shilling v. M.N.R., supra.
[22] However, before I turn to the application of the connecting factors test, I would make three preliminary observations. First, as La Forest J. said in Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85, at page 131, the policy underlying section 87 is not to redress generally the economic disadvantages suffered by Indians “by ensuring that Indians may acquire, hold, and deal with property in the commercial mainstream on different terms than their fellow citizens.”
[23] Rather, like the companion provision in section 89 [as am. by R.S.C., 1985 (4th Supp.), c. 17, s. 12], the more limited and specific purpose of section 87 is to protect reserve lands, and Indians’ personal property on a reserve, from erosion, so that the bands are able to sustain themselves on the reserves as economic and social units. Hence, it is fully consistent with legislative policy to apply section 87 to income that is earned by Indians who reside on a reserve from work that is performed on a reserve.
[24] However, once all the connecting factors cease to be located on a reserve, it quickly becomes difficult to link the policy underlying the section 87 exemption to the factual context in which a person acquired the employment income in question. Thus, despite the admonition of La Forest J. in Mitchell, supra, at page 133, that “it will normally be appropriate to take a fair and liberal approach to the problem whether the paramount location of … a chose-in-action is situated on the reserve”, to stretch the benefit of paragraph 87(1)(b) beyond its limited rationale would be likely to produce incoherent and ad hoc decisions.
[25] It is for this reason, in my view, that this Court appears to have upheld a section 87 claim in respect of employment income when its situs was in dispute in only two cases, Canada v. Folster, [1997] 3 F.C. 269 (C.A.); and Amos v. Canada, [2000] 3 C.N.L.R. 1 (F.C.A.). In Folster, supra, the only factor that did not connect the employment income to the reserve was the place where the employees worked, which was then, by happenstance, just off reserve. Similarly, in Amos, supra, while the employees did not work on the reserve, part of the employer’s business was conducted on contiguous reserve land that it had leased from the band with the expectation that employment opportunities for band members would be created in the business. In both Folster, supra, and Amos, supra, the employees lived on the reserve adjacent to where they worked.
[26] Second, in Williams, supra, at page 892, Gonthier J. emphasized that an application of the connecting factors test in the light of the policy underlying section 87 must have regard to the nature of the particular property and the type of tax in question. Hence, for example, an application of the balancing factors test to determine whether tangible property is situated on a reserve must be treated with caution when intangible property is concerned.
[27] Further, in my opinion, the protection of reserve lands from erosion by tax lies closer to the core of section 87 than does the protection of items of individually owned personal property while they are situated on a reserve. Reserve lands, which are communally owned by members of the bands that occupy them (Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), 2001 FCA 67; [2001] F.C.J. No. 725 (C.A.) (QL), at paragraphs 16-18), represent the Bands’ economic base and are critically important to the maintenance of their cultural, spiritual and social life.
[28] I would also note in this context that in Amos, supra, at paragraph 7, Strayer J.A. concluded by saying that, because the employer had leased reserve land for the purpose of its business, the employment in the business of members of the Band that had leased the land:
… was directly related to the realization by the Band and its members of their entitlements to the reserve land and, in accordance with the purpose of the tax exemption in section 87, the government should not be able through income taxation to erode income from such use, direct or indirect, of their land as is found in this case.
[29] Thus, Gonthier J.’s statement in Williams, supra, at page 887, that the purpose of the situs test in section 87 is to determine whether the Indian holds the property in question “as part of the entitlement of an Indian qua Indian on the reserve” would seem more apposite to reserve lands than to personal property, such as employment income, which is owned by Indians individually.
[30] As to the nature of the tax, the connecting factors may not be balanced in exactly the same way for a transaction-based tax, such as sales tax, that is focussed on a specific transaction at a single point in time, as for income tax, which is levied on money earned over a period.
[31] Third, counsel for the respondents relied on an example illustrating Guideline Four of Revenue Canada Indian Act Exemptions for Employment Income Guidelines to support his position. This was the provision to which counsel for the Crown had referred when he advised the Court that the appeals were not being pursued with respect to income that four of the respondents had earned for work performed while on reserves.
[32] However, these appeals must be decided by applying the Indian Act and the relevant case law to the particular facts of the case. Since this exercise involves weighing and balancing various connecting factors in a particular factual matrix, it is difficult to attach much weight to an example in the Guidelines, where the facts given are neither complete, nor identical with those in the present case.
(ii) Weighing the Connecting Factors
(a) Nature of employment
[33] While the weight to be assigned to particular connecting factors must always depend on the facts of each case, the location and nature of the employment, and the circumstances surrounding it, will generally be very important in situating an Indian’s employment income for the purpose of section 87.
[34] Thus, in Folster, supra, at paragraph 27, Linden J.A. provided a compelling reason for affording particular weight to this connecting factor:
In my view, having regard for the legislative purpose of the tax exemption and the type of personal property in question, the analysis must focus on the nature of the appellant’s employment and the circumstances surrounding it. The type of personal property at issue, employment income, is such that its character cannot be appreciated without reference to the circumstances in which it was earned. [Emphasis added.]
Similarly, in Bell v. Canada, [2000] 3 C.N.L.R. 32 (F.C.A.), at paragraph 36, Létourneau J.A. said:
… . the connecting factor that best indicates whether the personal property in question is within the commercial mainstream or not is the nature of the employment and the circumstances surrounding it.
This view was recently reiterated in Shilling, supra, at paragraphs 46-52.
[35] A consideration of this connecting factor requires the Court to examine the following aspects of the employees’ work.
Location of employment
[36] The first aspect is the location of the performance of the services, or where the employee works. As a result of the Crown’s decision to pursue the appeals in part only, the appeals are limited to the employment income earned by the respondents in respect of work performed off reserve.
[37] There is no doubt that the performance of work off reserve is an indication that the employment income is not situated on a reserve: Shilling, supra, at paragraphs 47-48. However, the location of the employment is not in itself determinative: Bell v. Canada (1998), 98 DTC 1857 (T.C.C.), at page 1863. If the Minister abandoned the appeals in so far as they relate to income earned while the employees were working on a reserve because he regarded location as determinative, his view of the law was in my opinion incorrect.
[38] In Folster, supra, the employment income was held to be situated on a reserve, even though the hospital at which the employee worked was located off reserve. Indeed, the Court allowed the appeal primarily because the trial judge had regarded the fact that the services were not actually rendered on reserve as conclusively situating the employment income off reserve.
[39] However, an assessment of Folster, supra, must be made in light of its very particular facts. Connecting factors other than the location of the work performed, including the residency of the employees and of the beneficiaries of their services, pointed clearly to the reserve as the situs of the employment income. In addition, the hospital where the employees worked, and which served the medical needs of the reserve, had originally been on the reserve, but when it was rebuilt after a fire it was the subject of a “technical relocation” (paragraph 24) just outside the boundaries of the reserve. I note, parenthetically, that the hospital is now back on the reserve.
[40] In these circumstances, and in light of the policy of section 87, it would surely have been arbitrary to have concluded that the location of the employment precluded the employment income from being situated on a reserve. Similarly, in Amos, supra, Strayer J.A. concluded (at paragraph 6) that it would have been “too arbitrary” to withhold the benefit of section 87 from those employees who worked in the part of the business located on leased reserve land, when those whose employment duties were performed on contiguous reserve land were entitled to it.
[41] The facts of the present case are very different. The factors connecting the income to the reserve are not as strong: in particular, the employees do not reside on the reserve and two have no connection at all with a reserve. Moreover, many of the services are provided at a great distance from the reserves, and not just outside a reserve.
[42] That it was impracticable for the work to be performed on the reserves, as Awasis’ articles of incorporation and the Order in Council seem originally to have envisaged, does not enable the Court to proceed on the basis that the employment duties had in fact been performed there. As Rothstein J.A. said in Desnomie v. Canada (2000), 186 D.L.R. (4th) 718 (F.C.A.), at paragraph 21:
The necessity argument in effect says that the employer, employee and place of employment would be on a reserve if that were possible and therefore the employment income should be treated as if it were located on a reserve. The difficulty with this argument is that in the circumstances of this case, it does not deal with the issue at hand, namely, whether the appellant’s employment income is his property on a reserve. This is a locational, or situs determination, based upon the location of the relevant transaction. [Emphasis added.]
[43] I agree that necessity cannot locate on a reserve the performance of employment duties that were clearly performed off reserve, nor situate employment income on a reserve when the connecting factors clearly point to another location. The fact that the respondent works off reserve is a factor that tends to connect his employment income elsewhere than on a reserve.
Nature of employment services
[44] The nature of the services rendered by the respondent in the course of his employment connects his employment income to reserves. The principal focus of the services provided by Awasis through its employees is to support and strengthen Native families on the reserves, and, in particular, to attend to the social needs of children on the reserves. Reconnecting with their bands children in the care of Awasis, and of other child care agencies, is an important part of Awasis’ mandate, and hence of its employees’ work. At all material times, nearly all Awasis’ employees were Treaty Indians.
[45] Clearly, individuals on the reserves served by Awasis, as well as the reserves themselves viewed as social units, are, as in Folster, supra, the immediate beneficiaries of the employees’ work. This aspect of the work performed distinguishes the present case from Desnomie, supra, where the students supported by the services were off reserve and there was no evidence that they were necessarily intending to return to a reserve.
[46] However, while the employees’ work may help to maintain and enhance the quality of life on the reserves for members of the bands living there, it does not necessarily connect the acquisition or use of their employment income to the reserves as physical locations.
Surrounding circumstances
[47] In considering an employee’s work as a connecting factor, the Court should not overlook the circumstances surrounding it: Folster, supra, at paragraph 27. This consideration ensures that, in weighing the employment factor, the Court assesses the situation as a whole. However, since necessity is relevant only as part of the context in which the services were rendered, it plays a secondary role in the analysis.
[48] Counsel submitted that the rejection of the necessity argument may have been appropriate in Union of New Brunswick Indians v. New Brunswick (Minister of Finance), [1998] 1 S.C.R. 1161, on which Desnomie, supra, relied, because the tax in question in that case, sales tax, was imposed on a particular transaction respecting tangible property. However, he argued, it is not appropriate in cases involving income tax, which is not imposed on tangible property and specific transactions, but on an intangible, the receipt of income earned over a period of time. Accordingly, in determining whether a person is entitled to an income tax exemption under section 87, the Court should take into account all the circumstances in which it was earned.
[49] On the basis of this contention, I have had regard, as part of the totality of the circumstances in which the work was performed, to the fact that it was not possible to deliver on the reserves many of the services and programmes provided by the employees of Awasis (such as counselling and court services), and that many of the necessary facilities (group homes and treatment centres, for example) only existed off reserve.
(b) Location and nature of employer
[50] The location of the employer has been regarded as a connecting factor under the analysis mandated by Williams, supra. However, in the absence of some evidence of the scope of the employer’s activities on the reserve, or some benefit flowing to a reserve from the presence of the employer, it is not a factor to which much weight is apt to be assigned: Shilling, supra, at paragraph 35. In particular, an employer’s location of convenience on a reserve will do little to connect the employment income to a reserve.
[51] From a corporate perspective, Awasis is located off reserve because its registered office is in Thompson, where, in addition, it is administered and its board of directors’ meetings are held. However, the directing minds of the corporation, namely its members and the directors whom they elect, are all chiefs of bands residing on the reserves served by the corporation.
[52] In order to determine whether the employer tends to connect the respondent’s employment income to a reserve, it is relevant to have regard to the employer’s corporate objects and the circumstances in which it came into existence. The welfare of Indian children on reserves, and the strengthening of their families, closely link the employer to the well-being of the reserves.
[53] In addition, the unique and strong connection between the employer and the reserves is also evidenced by Awasis’ origin in an agreement among the provincial and federal levels of government, and the chiefs of the bands that it was created to serve, and in a provincial Order in Council entrusting to it the statutory powers and duties of a child caring agency for the reserves.
[54] Again, in my view, the fact that Awasis’ centre of operation is in Thompson by virtue of the geography and poverty of the reserves that it serves is part of the circumstances surrounding the employer that it is legitimate to consider when determining the weight to be afforded to the location and nature of the employer as a connecting factor.
[55] For the purpose of the present inquiry, Awasis should be regarded as closely linked to reserves through the residency and identity of its members and directors, as well as through the reason for its creation, funding, statutory status, objects and the nature of the services that it provides. However, the fact that Awasis does not conduct its business on a reserve and hence, apparently, provides no employment opportunities on reserves, points to an off-reserve residency and hence weakens the connection between the employer and the reserves for the purpose of determining the situs of the respondent’s employment income under paragraph 87(1)(b).
[56] I would note, again, the contrast with Amos, supra, where the employer did conduct its business on reserve land, which had been leased to it for this purpose on the understanding that employment opportunities in the business would thereby be created for members of the Band.
(c) Other connecting factors
[57] Since no other factors connected the employees with reserves, none was canvassed by counsel. I would attach virtually no significance to the location of the branches of the banks from which the employer pays salaries and at which the employees’ accounts are credited. Where employees receive their employment income has little, if any, logical connection with the policy underlying section 87.
[58] Since the policy underlying section 87 is to protect the reserves as an economic unit for the members of the bands living there, the residency of employees can be a significant factor in determining the situs of employment income. In the present case, none of the respondents resided on a reserve during the taxation years in question and two had lived off reserve all their lives.
[59] However, because the residency of the owner of the personal property is not part of the statutory definition of the scope of section 87, it cannot be a universal requirement. Indeed, it may be clear from the facts that a person’s tangible property is situated on a reserve, even though the person does not reside there. The fact that the property is kept on a reserve will normally deprive the owner of the benefit of using it in the commercial mainstream (Williams, supra, at page 887), regardless of the owner’s residency. However, I would note that in Mitchell, supra, at page 133, La Forest J., when apparently speaking of both tangible and intangible property, related the availability of the protections provided by sections 87 and 89 to whether or not there was “a discernible nexus between the property concerned and the occupancy of reserve lands by the owner of that property.” [Emphasis added.]
[60] Residency can thus be an important factor in connecting employment income to a reserve, and the fact that an employee does not live on a reserve can indicate that her or his employment income was not acquired or used on a reserve. In both Folster, supra, and Amos, supra, the employees resided on a reserve. Of course, residency is only one factor and there may be situations where it is outweighed by others, or assumes less significance. I would only add that counsel for the respondents did not deny the propriety of the Court’s considering residency in the connecting factors test.
(iii) Striking the Balance
[61] In Recalma v. Canada (1998), 158 D.L.R. (4th) 59 (F.C.A.), at paragraph 10, Linden J.A. said:
Where the income is employment or salary income, the residence of the taxpayer, the type of work being performed, the place where the work was done and the nature of the benefit to the Reserve are given great weight.
[62] In my opinion, the nature of the work performed by the respondent and the nature of the employer are closely connected with the reserves. The work is intended to strengthen and maintain families on the reserves and to ensure whenever possible that resources within the community are available to provide the necessary care for children on the reserves when their parents are unable adequately to care for them.
[63] The fact that the employer, Awasis, originated in an agreement between governments and the chiefs of the bands served by Awasis and, under the control of the chiefs, performs the functions of a child caring agency for the reserves, is another factor connecting the respondent’s work to the reserves. However, unlike the employer in Amosai, supra, Awasis does not benefit the reserves by providing consequential economic benefits for Band members on the reserves, because its administration is located off reserve, albeit by necessity.
[64] Finally, I would note that the Crown did not argue that, because the factors tended to connect the respondent’s employment income with more than one reserve, they should be given less weight. This is not a case like Desnomie, supra, or Shilling, supra, where it was difficult to link the employer or beneficiaries of the services with any reserve.
[65] However, I must weigh the fact that the respondent resides and performs his employment duties off reserve, often at great distances from the reserves served by Awasis, against the undoubted benefits to the residents of the reserves from the respondent’s services, the identity of the employer and the importance of the services to strengthening the essential social fabric of the reserves. The respondents in this and the related appeals live and work in Thompson and Winnipeg, the same communities as their taxpaying neighbours, Native and non-Native alike.
[66] That the work from which employment income is earned benefits Indians on reserves, and indeed may be integral to maintaining the reserves as viable social units, is not in itself sufficient to situate the employment income there. It is not the policy of paragraph 87(1)(b) to provide a tax subsidy for services provided to and for the benefit of reserves. Rather, it is to protect from erosion by taxation the property of individual Indians that they acquire, hold and use on a reserve, although in the case of an intangible, such as employment income, it is the situs of its acquisition that is particularly important.
[67] By enacting paragraph 87(1)(b) Parliament made an important exception to the principle that those similarly situated should be treated in the same way for tax purposes. However, the paragraph cannot be read as exempting from income tax Indians’ employment income that was not clearly earned in circumstances that link its acquisition to a reserve as an economic base.
[68] No doubt this is a relatively close case. However, on my reading of the jurisprudence, the benefit of the exemption will not readily survive the fragmentation of the more important connecting factors so as to enable claimants to establish that they are earning their living on a reserve, rather than in the broader Canadian economy. In my opinion, it would be difficult to justify a conclusion that the respondent acquired his employment income on the reserves served by Awasis, when he neither lived, nor worked there.
[69] As I have attempted to explain, the facts before us are very different from those in Folster, supra, and Amos, supra, the only cases, to the best of my knowledge, so far decided in this Court upholding a section 87 claim to exempt employment income from income tax. Further, while the facts of the present case are closer to those in McNab v. Canada, [1992] 4 C.N.L.R. 52 (T.C.C.), where the section 87 claim was allowed, I would note, without determining whether it was correctly decided, that the appellant in that case resided on a reserve and that some of the services were performed on a reserve.
E. CONCLUSIONS
[70] For the reasons that I have given, it would not be consistent with the purpose of section 87 to conclude that, on the facts of this case, the respondent’s employment income is situated on a reserve so as to exempt it from income tax.
[71] Accordingly, I would allow the appeal with costs both below and on appeal, set aside the decision of the Tax Court and restore the Minister’s assessment of the respondent’s liability to income tax for the years in question, except in respect of that portion of his income attributable to the time that he spent on the reserves in the performance of his employment duties. This latter limitation is because the Crown partly abandoned the appeals, not because I have concluded that the portion of the respondent’s employment income attributable to the work that he performed on the reserves necessarily brought it within the scope of the section 87 exemption.
Strayer J.A.: I agree.
Isaac J.A.: I agree.