The question of what s. 87 of the Indian Act allows to be non taxable has been before the courts many times. Recently, the Supreme Court of Canada, the highest court in the land again gave further insight on what is personal property located on the reserve and what is exempt from taxation
The case is called “Estate of Rolland Bastien and Her Majesty the Queen.” http://scc.lexum.org/en/2011/2011scc38/2011scc38.html
The facts are quiet simple:
1. The late Rolland Bastien was a status Indian and was from the Huron-Wendat Nation. He lived on the reserve his entire life.
2. During his life he operated a moccasin manufacturing business. In 1997 he sold the business to his children and invested his money in term deposits in two banks, one on his own reserve in a bank called Caisse Populaire Desjardins. The deposits on the other reserve were not part of this appeal.
3. The bank Caisse Populaire had its head office on the reserve and in fact this is the only place of business for the bank and its only fixed asset.
4. The term deposit made interest and the interest was placed in Mr. Bastien’s bank accounts. He considered the interest tax exempt but the Minister of National Revenue determined that he had to pay tax on the interest income. Mr. Bastien took the issue to court and the Tax Court and Federal Court of Appeal agreed the money was taxable.
5. The Supreme Court of Canada disagreed and ruled the interest income was not taxable and was personal property located on reserve.
The Grounds for finding the interest income not taxable was as follows:
6. Interest income is considered to be “intangible” property and using the usual test of whether the property is located within the boundaries of the reserve does not work.
7. The court applied the connecting factors approach set out in the case of Williams v. Canada. (that cases explored whether EI payments was income that was taxable)
8. The court reviewed the purpose of the exemption section of the Indian Act: It is to “preserve property reserved for their use, not to remedy the economically disadvantaged position of Indians by ensuring that they could acquire, hold and deal with property in the commercial mainstream on different terms than their fellow citizens (para 121)
These provisions are not intended to confer privileges on Indians in respect of any property they may acquire and possess, wherever situated. Rather, their purpose is simply to insulate the property interest of Indians in their reserve lands from the intrusions and interference of the larger society so as to ensure that Indians are not dispossessed of their entitlements.
Paragraph 22: …if an Indian band concluded a purely commercial business agreement with a private concern, the protections of ss. 87 and 89 would have no application in respects of the assets acquired pursuant to that agreement, except, of course, if the property was situated on reserve. It must be remembers that the protections of ss. 87 and 89 apply to property situated on a reserve.”
9. The court also declared that in determining whether the location of personal property is on the reserve, there is no requirement that the personal property has to be integral to the life of the reserve or benefit the traditional Indian way of life as some other cases have said.
10. The court also decided that the investment income that came from terms deposits is personal property within s. 87 of the Indian Act. The term deposit is when a person makes a loan to the bank on the condition they do not withdraw the money before the term is up or face financial penalties. For the use of that money the person is paid “interest”. The person/investor has nothing to do with how the bank takes that money and invests it in the equity markets and so where and how the money is invested is not a consideration for this case.
11. Mr. Bastien’s interest income did not come from business activities or business income and therefore was income from property.
12. The connecting factors that the court looked at in this case were as follows:
a) The head office of the Caisse was located on reserve.
b) The income paid to Mr. Bastien by the Caisse was from a contractual obligation that was entered into on the reserve. The investment was in the nature of a debt owed to him by the Caisse and did not make him a participant in the wider commercial markets in which the Caisse itself was active.
c) Income was paid on the reserve.
d) The Civil Code of Quebec also applied and states “that a contract has affect only between the two contracting parties and does not affect 3rd parties.”
e) The location of the issuer’s income generating activities is of not importance in this case.
The court ruled that all the relevant factors in this case connected the investment income to the reserve and was therefore not taxable.
This case was of course another victory for First Nations people across the country who still have s. 87 of the Indian Act applying to them. The question is whether the facts of this case make it a narrow ruling.
What would happen if it was a national bank such as the Royal Bank, BMO or CIBC whose head office was not on the reserve. It seems that the court was clear that it did not matter how the bank invested the money, what matter is that the contract was made on the reserve, the bank was located on the reserve and the income was paid on the reserve. That of course could be arguable under the facts of this case.
It seems a shame that in order to get clear rulings on tax issues that First Nations people have to go to court and go through so many levels of court in order to get the decision we need. It would be far better if there could be agreements with the Leadership and Revenue Canada on the outstanding questions regarding exemption of tax on personal property on reserve. If there can be no agreement, then a reference could be taken before the Supreme Court of Canada on those areas of disagreement. Getting to the Supreme Court of Canada is lengthy and expensive. In this particular case, Mr. Bastien’s first case was heard in 2007 and before the Federal Court of Appeal in 2009 and in 2011 before the Supreme Court of Canada. It was a case brought for the “estate” of Mr. Bastien and the question of whether the investment income made in 2001 on term deposits took 10 years to decide. Such a timeline to determine something that is so simple is not acceptable and something should be done to change such onerous processes.