Date: 20000419
Docket: A-533-98
OTTAWA, ONTARIO, WEDNESDAY, APRIL 19, 2000
CORAM: DÉCARY J.A.
ROTHSTEIN J.A.
MALONE J.A.
BETWEEN:
GEORGE DESNOMIE,
Appellant,
-and -
HER MAJESTY THE QUEEN,
Respondent.
HEARD at Winnipeg, Manitoba, on Friday, March 30, 2000
JUDGMENT DELIVERED at Ottawa, Ontario, on Wednesday, April 19, 2000
REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.
and MALONE J.A.
CONCURRED IN BY: DÉCARY J.A.
Date: 20000419
Docket: A-533-98
CORAM: DÉCARY J.A.
ROTHSTEIN J.A.
MALONE J.A.
BETWEEN:
GEORGE DESNOMIE,
Appellant,
-and -
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
ROTHSTEIN and MALONE JJ.A.
[1] The issue in this appeal from a June 23, 1998 decision of Archambault J.T.C.C.1 is whether the appellant's employment income is exempt from taxation by virtue of paragraphs 87(1)(b) or 90(1)(b) of the Indian Act R.S.C. c. I-5.
[2] Paragraphs 87(1)(b) and 90(1)(b) provide:
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
...
(b) the personal property of an Indian or a band situated on a reserve.
90(1) For the purposes of sections 87 and 89, personal property that was
...
(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.
87.(1) Nonobstant toute autre loi fédérale ou provinciale, mais sous réserve de l'article 83, les biens suivants sont exemptés de taxation:
...
(b) les biens meubles d'un Indien ou d'une bande situés sur une réserve.
90.(1) Pour l'application des articles 87 et 89, les biens meubles qui ont été:
...
(b) soit donnés aux Indiens ou à une bande en vertu d'un traité ou accord entre une bande et Sa Majesté,
sont toujours réputés situés sur une réserve.
[3] The appellant is an Indian. During 1989, he was Executive Director of the Manitoba Indian Education Association (MIEA). In that year, his employment income was $41,375.54. The sum of $11,029.13 was deducted at source for income tax purposes. In his income tax return for that year he claimed that his employment income was not taxable by reason of sections 87 and 90 of the Indian Act. The appellant claimed a refund of the amount of income tax deducted at source.
[4] By notice of reassessment dated March 11, 1991, the Minister of National Revenue reassessed the appellant by including his employment income in the calculation of his taxable income. Archambault J. denied the appellant's appeal to the Tax Court of Canada.
PARAGRAPH 87(1)(b) (ANALYSIS BY ROTHSTEIN J.A.)
[5] In coming to his conclusion, Archambault J. applied the now well-known "connecting factors test", first enunciated by the Supreme Court of Canada in Williams v. Canada2, for the purpose of determining the situs of intangible property such as employment income. As noted by Gonthier J. in Williams at page 887:
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.
[6] The difficulty with intangible property is that the property may be considered to have no situs, or alternatively, too many. At page 891 of Williams Gonthier J. stated:
There is the situs of the debtor, the situs of the creditor, the situs where the payment is made, the situs of the employment which created the qualification for the receipt of income, the situs where the payment will be used, and no doubt others. The task is then to identify which of these locations is the relevant one, or which combination of these factors controls the location of the transaction.
[7] The issue before Archambault J. in this case was the location of the transactions giving rise to the appellant's employment income from the MIEA. The connecting factors considered by the learned Judge were:
(1) residence of employer;
(2) residence of employee;
(3) where the work was performed;
(4) where the employee was paid; and
(5) the nature of the services performed or the special circumstances in which they were performed.
[8] Archambault J. found that Winnipeg was the residence of the employer, residence of the employee, the place where the work was performed and by inference, where the appellant was paid. These factors did not connect the appellant's employment income to a reserve.
[9] The learned Judge then analyzed the special circumstances of the appellant's employment. The MIEA is a non-profit corporation. The function of the association is (among other things) to assist in the off-reserve education of children from reserves. The services offered include: (1) assistance in adjusting to city living; (2) arranging for financial support; (3) the provision of personal, financial, academic, education and career counselling; and (4) the provision of tutorial services.
[10] The learned Judge placed little weight on special circumstances. At paragraph 23, he stated:
The fact that the clientele of the employer was made up of native students coming from reserves should not be given much weight. Those native students were living off the reserve for at least 8-10 months while they benefitted from the services provided to them by the MIEA. It should also be stressed that it is Mr. Desnomie's personal property that has to be "situated on a reserve" and not the personal property of native students. Expressed in a slightly different manner, the "erosion of the entitlement of an Indian qua Indian on a reserve" has to be determined by reference to the person whose income is involved and not by reference to the different reserves that are benefitting directly or indirectly from the services of this person.
[11] Archambault J. found that the appellant was working in the mainstream of a large urban centre. As a result, he concluded that the appellant accepted that his property was not protected. At paragraph 25 he stated:
Here, by accepting living for so many years in a city like Winnipeg - at least eight years at the time of the relevant taxation year and eighteen years at the time of the hearing - I believe that Mr. Desnomie has accepted living in an environment where his property is not protected. Granting him the exemption that he is seeking would be granting him a privilege that his fellow citizens of Winnipeg do not enjoy while working in that city.
[12] I am in entire agreement with the comprehensive and well reasoned decision of the learned Tax Court Judge and no useful purpose would be served by repeating his analysis in my own words. I only add the following to deal with the specific arguments made by the appellant before this Court.
(1)Monias v. The Queen3 should be followed.
[13] The appellant argued that on facts very similar to those in this appeal, the Tax Court Judge in Monias came to the conclusion that the employment income in that case was exempt from taxation under section 87.
[14] Counsel advised that Monias is the subject of appeal proceedings in this Court. It would therefore be inappropriate to pre-empt that appeal by this panel commenting on the reasoning of the Trial Judge in that case. The present appeal must be decided on its own facts. Having said this, the appellant did make a number of arguments that appear to have been considerations in Monias. The appellant's arguments will be addressed, but only in the context of the facts in the present appeal.
(2)The location of the employer, the employee and the employment is dictated by factors beyond the control of the employer or employee.
[15] The appellant says that the off-reserve location of the employer should be given little weight in the connecting factors analysis. All directors of the MIEA reside on reserves. All are members of Indian bands. Meetings of the board are held in Winnipeg out of necessity. A related argument is that the place where the appellant works and where the services are performed - off-reserve - also should not be given significant weight. Education opportunities beyond grades 9 or 10 are not available on reserves. Students must leave the reserve and move to Winnipeg to pursue their education. The services provided by the appellant in these circumstances are provided in Winnipeg because there is no realistic way for them to be provided on a reserve. Therefore, the employer, the employee and the employment are intensively connected to various Indian reserves in Manitoba.
[16] In Union of New Brunswick Indians v. New Brunswick (Minister of Finance)4, a similar argument was made in respect of sales tax paid by New Brunswick Indians on purchases of goods made off-reserve to be used on the reserve. It was said that the Indians were obligated to make such purchases off the reserve and therefore the protection afforded by section 87 was eroded. McLachlin J. (as she then was), for the majority, rejected this argument. After noting that in the event of ambiguity, an interpretation that most favours the Indians is to be preferred (paragraph 6), she stated at paragraphs 37 and 38:
37. The respondents argue that s. 87 is intended to protect Indians from taxation in respect of their use of property on-reserve. Where Indians are obliged to purchase most of their goods off reserve, as most are in New Brunswick, this protection is eroded. Therefore, they submit that s. 87 should be read as applying to sales tax levied off reserve on goods purchased by Indians for use on the reserve. This was the view of the majority of the New Brunswick Court of Appeal.
38. The first difficulty with this argument is that it takes the purpose of s. 87 far beyond that articulated by this Court in Williams - to prevent Indian property on Indian reserves from being eroded by taxation or claimed by creditors. No support has been offered for the proposed extension, except this would economically benefit Indians. But that, this Court has stated, is not the purpose of s. 87: see Mitchell and Williams. La Forest J. in Mitchell (at p. 133), specifically cautioned against attributing an expansive scope to the s. 87 exemption:
| ...one must guard against describing an overly broad purpose to ss. 87 and 89. These provisions are not intended to confer privileges on Indians in respect of any property that 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 intrusion and interference of the larger society so as to ensure that Indians are not dispossessed of their entitlements. |
[17] The necessity argument in New Brunswick Indians is, if anything, more compelling than in the appeal at bar. There, the goods being purchased, of necessity off the reserve, were for use on the reserve. Nonetheless, the argument failed as taking the purpose of section 87 far beyond what was articulated in Williams - to protect Indian property on Indian reserves from being eroded by taxation.
[18] In this case what is at issue is the appellant's employment income. The appellant is a member of the Peepeekisis Band, located twenty miles east of Fort Qu'Appelle in Saskatchewan. In 1989, he had lived off his reserve, in Winnipeg, for nine or ten years. As the learned Tax Court Judge stressed, it is the appellant's personal property that has to be "situated on a reserve ...". There is no connection here between the appellant's employment income and the Peepeekisis Reserve in Saskatchewan.
[19] The necessity argument is based on the connection between the MIEA and the services performed by the appellant on the one hand, and students from various reserves in Manitoba on the other. It explains why it makes sense for the MIEA and the appellant to be located in Winnipeg, even as they are providing services to Indian students from reserves.
[20] However, the object of the connecting factors test is to determine the situs of intangible property for purposes of section 87, having regard to whether the Indian holds the property as part of an entitlement of an Indian qua Indian on the reserve. In Union of New Brunswick Indians McLachlin J. reaffirmed this purpose at paragraph 8:
The purpose of the s. 87 exemption was to "preserve the entitlements of Indians to the reserve lands and to ensure that the use of their property on the reserve lands was not eroded by the ability of governments to tax, or creditors to seize". It "was not to confer a general economic benefit upon the Indians": see Williams, supra, at p. 885.
Having regard to intangible property she continued at paragraph 12:
Again, in Williams, supra, the Court, per Gonthier J. confirmed the approach in Mitchell in determining whether the situs of unemployment insurance benefits was on or off the reserve for the purposes of taxation. As the benefits, intangible personal property, were effectively on the reserve at the time of taxation, they were exempt from taxation pursuant to s. 87.
[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 transactions. The implication of the appellant's argument is that as long as an Indian is performing work for an Indian employer and for Indians from reserves, his employment income should be tax exempt, irrespective of where he, his employer, or the place of the employment is located, or where he is paid. There is no doubt the nature of the appellant's work is related to assisting reserve Indians when they move off the reserve. There is also no doubt that his employer is an Indian organization. The problem is that these considerations do not connect the appellant's employment income to any particular reserve. Even if it could be argued that the section 87 exemption applies when the property of an Indian is located on a reserve other than his own, in this case the nature of the employer and the employment alone do not identify a specific reserve to which the appellant's property can be connected. Therefore, these considerations do not help to locate his employment income.
[22] To accept the necessity argument as justifying a section 87 exemption from tax on the appellant's employment income would, as found by McLachlin J. in Union of New Brunswick Indians, extend the purpose of section 87 far beyond that articulated in Williams. While not having to pay income tax would undoubtedly benefit the appellant, that is not the purpose of section 87. In the circumstances of this case, the necessity argument does not assist the appellant.
(3) Physical proximity is given too much weight by the Tax Court Judge.
[23] The appellant says that even though Winnipeg is located relatively far from Indian reserves in Manitoba, it would be wrong to disqualify employment income from section 87 protection.
[24] The purpose of section 87 is to exempt personal property of an Indian situated on a reserve from taxation. The words "situated on a reserve" are words describing a location. Therefore, it is difficult to understand how physical proximity is not an important consideration. In the case of tangible property, there is no doubt that the property must be physically situated on the reserve. In the case of intangible property, the question is whether the situs of the transaction is on the reserve.
[25] In a number of cases to which counsel made reference, e.g. Folster v. The Queen5 and Amos et al. v. The Queen6, the location of employment was in close proximity but not on the reserve. However, the particular circumstances, including the residence of the employee and the nature of the employment were sufficiently strong to connect the employment income to a particular reserve.
[26] When, however, in the context of a connecting factors analysis, the location of the employer, employee, employment and place where the payment is made are all far from any reserve and in particular the appellant's own reserve, it is not inappropriate to have regard to remoteness in relation to a reserve in determining whether property is held by an Indian qua Indian on a reserve.
(4) The Tax Court Judge failed to follow Folster v. The Queen which was binding on him.
[27] The appellant relies on Folster, and in particular, the nature of the employment analysis in that case. In the case at bar, Archambault J. expressly, and in detail, distinguished Folster. Most significantly, in Folster, the taxpayer was residing on a reserve, her employment was for a hospital that had been on that reserve, the hospital was relocated after a fire, and the land on which the hospital was situated was in the process of being annexed by the reserve. None of these circumstances were present in the appellant's case.
[28] The appellant says the Tax Court Judge erred in finding that the determination for section 87 purposes must be made by reference to the person whose income is involved and not by reference to the different reserves that are benefitting from the services of that person, because such an approach is inconsistent with the approach in Folster. I see no inconsistency between the observations of Archambault J. and the dicta in Folster. Nothing in Folster suggests that the focus is not properly on the property subject to taxation. In the case of employment income, that is the income of the recipient.
[29] The reason for the introduction of the connecting factors test in Williams was succinctly stated by Gonthier J. at page 891:
The test for situs under the Indian Act must be constructed according to its purposes not the purposes of conflict of laws.
[30] In close cases, such as Folster, special circumstances of the employment may assist in determining the situs of the employment income. However, where all other possible connecting factors would not situate the employment income on a reserve, it is highly unlikely that the special circumstances of the employment alone would be such as to tip the balance the other way. In this case, Archambault J. found that the special circumstances of the employment were not sufficient to tip the balance in favour of the appellant. In doing so, he did not err in focusing on the appellant's property and finding that it did not pass the situs test for property located on a reserve.
(5) If the appellant is taxed, the effect would be to require the MIEA to pay more, thereby eroding its purchasing power.
[31] This argument is misplaced for at least two reasons. The first is that it appears from the record that the appellant's salary level was based on it being taxable. Article VII, Section 7.40 of By-law No. 1 of the MIEA provides:
Staff salaries shall be determined by using Treasury Board of Canada and P.S.A.C. agreements as guidelines.
Further, income tax was deducted at source. These references indicate that the MIEA was paying salaries based on Treasury Board and P.S.A.C. agreements as guidelines which would certainly assume that salaries would be taxable. There is no indication of any adjustment to salaries based on a tax exemption under the Indian Act. Accordingly, a finding against the appellant would have no effect on the salary levels paid by the MIEA.
[32] The second reason the argument is misplaced is that it runs contrary to the purpose of the section 87 exemption. The purpose is not, as stated in Williams and affirmed in Union of New Brunswick Indians, to provide a general economic benefit on Indians. As stated by McLachlin J. in Union of New Brunswick Indians at paragraph 40:
A third difficulty with this argument is that the history of s. 87 belies the conclusion that Parliament intended it to provide general tax protection for off-reserve property. The tax exemption began in 1850 as a prohibition against taxes on Indians residing on Indians lands. It was amended in 1876 to prevent taxes on Indian property unless it was held outside the reserve. It now prohibits taxation in respect of Indian property that is situated on the reserve: see Bartlot, supra. Over the years Parliament has explicitly limited and narrowed the scope of what is now s. 87 to protect from taxation only property that is situated on the reserve.
[33] The erosion of purchasing power argument is not apposite because it is directed at promoting general tax protection for off-reserve property, which is not an objective of section 87. If Parliament wishes to provide additional economic benefits or protection from taxation for Indians or Indian organizations for off-reserve property, it is open to it to do so. That is not the function of the Court.
[34] For these reasons, the appellant's arguments relating to paragraph 87(1)(b) of the Indian Act must be rejected.
PARAGRAPH 90(1)(b) (ANALYSIS BY MALONE J.A.)
[35] The appellant advances a second argument pursuant to paragraph (b) of subsection 90(1) of the Act. That provision deems any personal property given to Indians or to a band under a treaty or agreement between a band and Her Majesty to be always situate on a reserve. Based on the federal government's treaty obligations in the Province of Manitoba to maintain schools on reserves it is argued that the services provided by the MIEA are one of the means by which that obligation is discharged; the Contribution Agreement between Canada and the MIEA being a paragraph (b) subsection 90(1) agreement that must give rise to tax exempt income.
[36] Subsequent to the release of the Tax Court decision now before us, this Court in the case of The Queen v. Kakfwi7 ruled that a paragraph 90(1)(b) agreement must be an agreement ancillary to a treaty.
[37] The Agreed Statement of Facts that was placed in evidence refers to the terms of "certain numbered treaties" whereby the Crown undertook to:
"...maintain schools for instruction in such reserves hereby made as to Her Government of the Dominion of Canada may seem advisable, whenever the Indians of the reserve shall desire it" (Treaty No. 5), or "...to maintain a school in the reserve allotted to each band as they settle on said reserve..." (Treaty No. 4). Other numbered Treaties contain similar wording in describing the obligation of the federal government in respect of education for Indians.
[38] In Kakfwi, Marceau J.A. affirmed the finding of La Forest J. in Mitchell v. Peguis Indian Band8, that the agreements referred to in paragraph 90(1)(b) are agreements ancillary to treaties:
Thus, La Forest J.'s analysis makes clear that an application of the basic rules of legislative interpretation which require that the terms "treaty" and "agreement" in paragraph 90(1)(b) be linked together so as to limit the extent of the word "agreement" to that of "ancillary agreement" -- that is to say an agreement in the nature of a treaty or attached to a treaty -- is wholly supported by the history of the protective tax regime adopted by Parliament in furtherance of the duties of the Crown toward the Indians.
In the present case, there is simply insufficient evidence to link the Contribution Agreement to any treaty. There is no treaty referred to in the agreement. The agreement on its face does not purport to provide for the maintenance of schools on reserves.
[39] The appellant also argued that while the MIEA is a corporation incorporated under the Corporations Act of Manitoba and therefore is not technically an "Indian" or a "band" within paragraph 90(1)(b) of the Act, that it is well settled that the corporate veil may be pierced when a corporation is merely the agent of another entity or for the just and equitable enforcement of a tax law.9 It was submitted that in this case piercing the corporate veil would reveal the tax exempt character of its shareholders. Archambault J. is said to have erred in refusing to lift the corporate veil.
[40] For whatever reason, the shareholders of the MIEA chose to conduct their affairs using a corporate structure pursuant to the relevant Manitoba statute. That choice gave rise to the commercial benefits of both a corporate veil and limited liability. The question of whether, in the application of a taxing statute, the separate legal entity can be disregarded and liability determined by the status of its shareholders was considered in the case of Pioneer Laundry & Dry Cleaners Ltd. v. M.N.R.10. There the Judicial Committee determined that in a taxing statute the corporate veil could only be pierced in instances of fraud or improper conduct. Based on that authority, circumstances appropriate for the piercing of the corporate veil in this case of the tax exempt status of the appellant did not exist. No error of law was committed by the Tax Court Judge in refusing to lift the corporate veil.
[41] The appeal should be dismissed with costs.
"Marshall Rothstein"
ROTHSTEIN J.A.
"I agree
Robert Décary J.A."
"B. Malone"
MALONE J.A.
__________________
9 Kinookiman Beach Association v. R. In Right of Saskatchewan, [1987] 6 W.W.R. 84, at 88 (Sask. C.A.).
10 [1939] 4 D.L.R. 481 (H.L.) (On appeal from decisions of the Supreme Court of Canada and Exchequer Court of Canada).