T-2244-75
The Queen (Plaintiff)
v.
National Indian Brotherhood (Defendant)
Trial Division, Thurlow A.C.J.—Ottawa, Septem-
ber 12 and October 16, 1978.
Income tax — Penalties assessed for failure to deduct and
remit taxes for which employees liable — Full status Indian
employees off reservation working for corporation located off
reservation but involved with work among Indians — Whether
or not these full status Indians liable to tax on their salaries
from defendant and whether or not defendant required to
deduct those amounts — Indian Act, R.S.C. 1970, c. I-6, ss.
87, 90 — Income Tax Act, R.S.C. 1952, c. 148.
This is an appeal from a judgment of the Tax Review Board
which allowed an appeal from assessment for the years 1970,
1971 and 1972. Defendant, an Ottawa-based, non-profit organ
ization, employed a number of status Indians. Although these
employees would establish a residence at Ottawa, at least
temporarily, they all had resided on reservations, some main
tained dwellings there, and there is evidence that they would
return to their reserves on the termination of their employment.
The assessments were not of income tax but of penalties and
amounts assessed by the Minister of National Revenue as a
result of defendant's failure to deduct and/or pay over to the
Receiver General amounts as required in respect of the
employees' tax liability. The issue is whether the defendant was
required by the Income Tax Act and Regulations to make such
deductions from the salaries of those employees and pay them
over to the Receiver General.
Held, the appeal is allowed. With respect to the contention
that paragraph 90(1)(a) of the Indian Act applied to the
salaries of defendant's Indian employees because the funding
for defendant's operation was largely provided for by Parlia
mentary appropriation, and so deemed the salaries as property
situated on a reserve, 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). The
submission that the paragraph should be interpreted as if it
read "personal property that was ... moneys appropriated by
Parliament" is unacceptable as the words "purchased by Her
Majesty with" grammatically govern the whole of the remain
der of the paragraph. The defendant argued that the work of
the Indian employees 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, thereby rendering the salary situate on a reserve. The
exemption provided for by section 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. 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 to the contrary, the situs of
the simple contract debt has been held to be the residence or
place where the debtor is found. As the salaries in question of
the individual Indians until paid were simple contract debts
owed by a corporation not resident on a reserve, they were not
"situated on a reserve" within the meaning of subsection 87(1).
Greyeyes v. The Queen [1978] 2 F.C. 385, distinguished.
Commissioner of Stamps v. Hope [1891] A.C. 476, con
sidered. New York Life Insurance Co. v. Public Trustee
[1924] 2 Ch. 101, considered.
INCOME tax appeal.
COUNSEL:
W. Lefebvre and J. P. Fortin, Q.C., for
plaintiff.
M. J. Menczer and J. H. Wyatt for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Wyatt, Menczer & Burnet, Ottawa, for
defendant.
The following are the reasons for judgment
rendered in English by
THURLOW A.C.J.: 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' and Regulations
to deduct from the salaries of its Indian employees
and to pay over on account of their liability for
tax.
' R.S.C. 1952, c. 148 as amended.
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 in
corporated under the Canada Corporations Act 2
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 solu
tions 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 pro
vided by grants from one or more departments of
the Government of Canada. In carrying on its
activities, the defendant employs a number of per
sons, 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'.
These are all persons who resided on Indian
reserves before taking up employment with the
defendant and there is evidence that, on termina
tion 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 employ
ment, 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 individu -
2 R.S.C. 1970, c. C-32.
3 R.S.C. 1970, c. I-6.
al Indian employee to raise and establish, if neces
sary, by appeal from the assessment of his or her
tax. This position, if sound, would make it un
necessary 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 individu
al 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 surren
dered 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 men
tioned 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 con
text), 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 specifi
cally 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 4 , 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 agree
ment 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 sec
tion 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 5 .
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 contended that, as the funding of the defend
ant's operation was largely provided from appro
priations 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
4 Section 89 is a provision which exempts the property of
Indian bands and of Indians situated on a reserve from charges
or attachments in favour or at the instance of persons who are
not Indians.
5 See Francis v. The Queen [1956] S.C.R. 618 per Kellock J.
at 631:
It is quite plain from this section that the actual situation
of the personal property on a reserve is contemplated by s. 86
and that any argument suggesting a notional situation is not
within the intendment of that section.
which it would follow that the individual Indian
would be exempt from taxation in respect of his
salary. Counsel relied on Greyeyes v. The Queen 6
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 com
putation of the recipient's income for tax purposes
was given to the recipient pursuant to an agree
ment and treaty between the recipient's Band and
"Ottawa" [sic].
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 mean
ing 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 prop
erty that was ... moneys appropriated by Parlia
ment" 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 defend
ant's head office was in Ottawa and the employees
resided there 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 com
munity 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 section 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 exten-
6 [1978] 2 F.C. 385.
sion 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 individu
al 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 else
where 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 edi
tion, pp. 420 et seq.
In Commissioner of Stamps v. Hope', 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
7 [1891] A.C. 476 at pages 481-482.
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 fleeting 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 "conspic-
uous," i.e., within the jurisdiction within which the specialty
was found at the time of death: see Wentworth on the Office of
Executors, ed. 1763, pp. 45, 47, 60(1) [sic].
In New York Life Insurance Company v. Public
Trustee', Atkin L.J. 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 con
sideration 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 certain 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 question 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,
because 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'
and of the case which he followed, i.e., Petersen v.
Cree and Canadian Pacific Express Co."), appear
to me to proceed on that rule. Avery v. Cayuga",
as well, proceeds on that rule. There, a deposit
8 [ 1924] 2 Ch. 101 at page 119.
9 78 DTC 6335.
10 (1941) 79 C.S. (Que.) 1.
11 (1913) 13 D.L.R. 275.
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 C.J.O. saying at
page 276:
That the deposit is property situate outside of the reserve,
within the meaning of sec. 99, seems not to be open to question:
Commissioner of Stamps v. Hope, [1891] A.C. 476, 481-2;
Lovitt v. The King, 43 Can. S.C.R. 106; The King v. Lovitt
(1911), 28 Times L.R. 41.
There are expressions of opinion to the contrary
in Armstrong Growers' Ass'n v. Harris 12 and
Crepin v. Delorimier' 3 , 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 un
necessary 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.
12 [1924] 1 D.L.R. 1043.
13 (1930) 68 C.S. (Que.) 36.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.