Tax Court of Canada Judgments

Date: 20010327

Docket: 1999-2985-IT-I

BETWEEN:

JEANNE NAPONSE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Sarchuk J.T.C.C.

[1]            These are appeals by Jeanne Naponse from assessments of tax with respect to her 1995 and 1996 taxation years. In computing her income for those years the Appellant excluded the amounts of $21,504.76 and $24,349.28, respectively,[1] on the basis that they were exempt from tax pursuant to the provisions of paragraph 87(b) of the Indian Act[2] and paragraph 81(1)(a) of the Income Tax Act (the Act).

[2]            The Appellant filed notices of objection and by way of further reassessments, the Minister of National Revenue (the Minister) allowed an exclusion of 20% of the Appellant's total salary and deleted from her 1995 and 1996 incomes the amounts of $11,683.41 and $12,174.64, respectively. It is the Appellant's position that the Minister erred in so assessing and further says that in fact she was entitled to exclude 100% of her income pursuant to the relevant provisions of the Indian Act and the Act.

Background Facts

[3]            The Appellant is a status Indian who has been living on the Whitefish Lake Reserve #6 in Naughton, Ontario since 1971. She earned a Masters Degree in Higher Education from the Central Michigan State University and has been employed as a teacher by the Cambrian College of Applied Arts and Technology (Cambrian College) in Sudbury for a number of years. Cambrian College as a community college is a post-secondary institution. It is publicly funded and is open to all adult students and graduates from secondary school.

[4]            The Appellant testified that she had been elected as a council member of the Whitefish Lake Reserve and subsequently served a term as Chief. During her time in the latter position, she became involved with what she described as First Nation politics and became aware of the challenges facing Indian reserves. These concerns were shared by others and a group of Indian people in the Sudbury area formed a working committee to deal with native education issues. The committee approached the President of Cambrian College with a proposal and as a result in 1986, Cambrian College established the Wabnode Institute/School of Anishnaabe Studies (Wabnode Institute). Initially, one specific program was developed as a two-year pilot project. It was considered to have been successful and in or about 1991, the Anishnaabe Affairs Committee was formed. The role of this committee on behalf of the Board of Governors is to provide ongoing direction, support and/or advice to Cambrian College with respect to certain aspects of its mandate.[3] The Board of Governors of Cambrian, upon the recommendation of the committee, appoints the members of the committee, and must include at least two individuals from the Board of Governors.

[5]            It is an accepted fact that Wabnode Institute was and continues to be a department of Cambrian College. Funding for all programs and services offered at Cambrian was provided to it by way of an operating grant from the provincial Ministry of Education and Training, Colleges and Universities. Additional revenue was generated for Cambrian College from student enrolment, i.e. tuition fees. The Appellant observed that Cambrian may apply for a grant from the Department of Indian Affairs each year but this grant was not always given.[4] As well funding for support services was available for "First Nation Indian students" attending Cambrian College.[5] In so far as Wabnode Institute was concerned, each year it was necessary for its representative to meet with the finance department of Cambrian College to discuss and agree on the budget accounts for it. In the taxation years in issue this had been the responsibility of the Appellant.

[6]            In 1995 and 1996, Wabnode Institute was offering nine specific native programs.[6] The only admission requirement to them was an Ontario Secondary School Diploma or equivalent or mature status. Students in the programs are not required to be residents of a reserve nor are they required to be "Indian" as defined in the Indian Act. In fact a number of the students the Appellant taught did not live on reserves. During the taxation years in issue, the Appellant was a teaching professor for one of the programs, Native Early Childhood Education (the program).[7] She described it as consisting of a two-year, five-semester diploma program with a required field practicum component during which students are required to do their field training for a period of six weeks. The majority of the students who took this particular course completed their placements at a daycare centre on a reserve while the rest attended daycare centres located off reserve. To graduate, participants were required to have the skill and knowledge necessary for employment in licensed childcare settings and would be entitled to seek employment in any licensed childcare setting in Ontario.

[7]            The Appellant says that during the taxation years in issue, she assumed the duties of a field placement supervisor and was the only teacher responsible for placements in those years. Her duties included contacting employers or daycare centres to make arrangements for the students; updating the field placement manual; grading the students' assignments and on-site visits with the supervisor and the students to perform evaluations. She states she was given eight assigned complementary hours per week for her work in that capacity, but concedes that she had not been specifically appointed nor was she paid as a "faculty field placement supervisor" pursuant to her employment contract.[8]

Appellant's Position

[8]            The Appellant referred to a number of cases relating to the exemption from tax arising out of the interaction of section 87 of the Indian Act and paragraph 81(1)(a) of the Act but relies principally on Williams v. M.N.R,[9] Folster v. Canada,[10] Canada v. Poker,[11] Monias et al v. The Queen[12] and McNab v. Canada.[13] She says that her circumstances are similar to those in McNab andPoker. First, she has lived on a reserve from childhood, continues to do so and is an active member of that community. While the employment in Poker was not on the reserve, the nature and purpose of it was closely connected to the reserve and most of the students were Indian. She submits that although she was employed off reserve by Cambrian College, her work was even more closely connected to reserves than in Poker because the beneficiaries of her work were the Indian students who were taught at the Wabnode Institute as well as those Indian organizations that employed their graduates. The Appellant further submitted that on the facts, the principle of special circumstances applies because her employment as well as her employer were directly involved in benefiting and strengthening Indian reserves.[14]

[9]            The Appellant also contends that the position which she held in 1995 and 1996 was not of a commercial nature in that she was not competing with other Canadian citizens for business or for the job itself. She argues that only an Indian familiar with the traditions and cultures and values of her people could have done her job. She contends that training individuals to work on reserves in a manner consistent with their traditions is integral to the reserves and to Indians as Indians and asserts that the purpose of the Wabnode Institute was to directly assist reserves by training individuals to work on reserves.

Analysis

[10]          The Appellant is an Indian as defined in the Indian Act. The Minister included in her income certain amounts as employment income for the taxation years 1995 and 1996. The Appellant claims that this income is exempted from tax pursuant to section 87 of the Indian Act and subsection 81(1) of the Act which provides:

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.

87(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.

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;

[11]          The sole issue before the Court is whether the Appellant is entitled to the claim exemption from income tax in respect of her employment income as "personal property situated on a reserve" within the meaning of paragraph 87(1)(b) of the Indian Act.

[12]          In Williams v. The Queen,[15] Gonthier J. after discussing the nature and purpose of the exemption from taxation (including specific references to Mitchell v. Peguis Indian Bank and Nowegijick v. The Queen[16]) proposed the following approach:

IV - The Proper Test

                Because the transaction by which a taxpayer receives unemployment insurance benefits is not a physical object, the method by which one might fix its situs is not immediately apparent. In one sense, the difficulty is that the transaction has no situs. However, in another sense, the problem is that it has too many. 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.

                The appellant suggests that in deciding the situs of the receipt of income, a court ought to balance all of the relevant "connecting factors" on a case by case basis. Such an approach would have the advantage of flexibility, but it would have to be applied carefully in order to avoid several potential pitfalls. It is desirable, when construing exemptions from taxation, to develop criteria which are predictable in their application, so that the taxpayers involved may plan their affairs appropriately. This is also important as the same criteria govern an exemption from seizure.

                Furthermore, it would be dangerous to balance connecting factors in an abstract manner, divorced from the purpose of the exemption under the Indian Act. A connecting factor is only relevant in so much as it identifies the location of the property in question for the purposes of the Indian Act. In particular categories of cases, therefore, one connecting factor may have much more weight than another. It would be easy in balancing connecting factors on a case by case basis to lose sight of this.

                However, an overly rigid test which identified one or two factors as having controlling force has its own potential pitfalls. Such a test would be open to manipulation and abuse, and in focusing on too few factors could miss the purposes of the exemption in the Indian Act as easily as a test which indiscriminately focuses on too many.

                The approach which best reflects these concerns is one which analyzes the matter in terms of categories of property and types of taxation. For instance, connecting factors may have different relevance with regard to unemployment insurance benefits than in respect of employment income, or pension benefits. The first step is to identify the various connecting factors which are potentially relevant. These factors should then be analyzed to determine what weight they should be given in identifying the location of the property, in light of three considerations: (1) the purpose of the exemption under the Indian Act; (2) the type of property in question; and (3) the nature of the taxation of that property. The question with regard to each connecting factor is therefore what weight should be given that factor in answering the question whether to tax that form of property in that manner would amount to the erosion of the entitlement of the Indian qua Indian on a reserve.

                This approach preserves the flexibility of the case by case approach, but within a framework which properly identifies the weight which is to be placed on various connecting factors. Of course, the weight to be given various connecting factors cannot be determined precisely. However, this approach has the advantage that it preserves the ability to deal appropriately with future cases which present considerations not previously apparent.

[13]          The property in issue in this appeal is employment income. The potentially relevant connecting factors are, in no particular order, the residence of the Appellant, the residence of the Appellant's employer, the location of the work performed, the nature of the services performed and the circumstances in which they were performed.

[14]          The Appellant contended that no substantial distinction exists between her case and those of Folster, Poker and McNab. In those cases, the Courts concluded that the circumstances surrounding the employment and the income therefrom overwhelmingly pointed to the reserve. That is not the case here. The one point of similarity is the fact that each of these Appellants at all relevant times resided on reserve. On the other hand, in Poker and McNab, the situs of both the employee and employer was on reserve while in Folster, the employer was physically situated adjacent to the reserve. In that case, the Court determined that to attribute great significance to that fact would obscure the true nature of the employment income in that case. Insofar as the Appellant is concerned, her employer was not resident in any sense of the word on the reserve. The Appellant also maintained that a "significant portion of my work actually took place on reserves". The evidence, however, indicates otherwise. I particularly note that when teaching responsibilities were assigned for each semester, every faculty member at Cambrian College was required to sign a Standard Workload Form which prescribes the total workload for that member.[17] The Appellant's three Workload Forms for 1995 disclose that she taught four courses during the first semester, three during the second and five during the third. Only one Workload Form was available for the 1996 taxation year. It reflected the January–February semester during which the Appellant taught four courses. With one exception all of the courses were taught at the Cambrian College, Wabnode Institute Department, Sudbury campus. The single exception (and then only to a limited extent) was the field practicum seminar which the Appellant described as designed to prepare students to know what to expect during their field placements. Furthermore, a substantial portion of her work on reserve related to preparation of material for her regular classes which she did at her residence. It cannot be seriously argued that this was a duty which she was required to perform on a reserve by virtue of her contract.

[15]          I am also unable to accept the Appellant's assertion that her employment was not in the commercial mainstream. In the taxation years in issue and for a number of years prior to that, Cambrian College was her employer. At all relevant times, she was a member of the Ontario Public Service Employees' Union, Local 655, which is a general teacher's (faculty) Local and is not specific to Aboriginal people. As a member of this Local she benefited from all of the collective bargaining agreements including the provisions regarding workload distribution and salary. The Appellant does not suggest nor is there any support in the guidelines for funding programs for Aboriginal students or in the Anishnaabe Affairs Committee mandate[18] to even remotely suggest that teaching positions at the Wabnode Institute were restricted in any way.

[16]          The Appellant also argued that training individuals to work on reserves in a manner consistent with Indian culture, traditions and values is integral to the reserves and to Indians as Indians. She says that since the purpose of Wabnode Institute was to directly assist reserves by training individuals to work there, it is necessary to consider the fact that her employment was aimed at providing benefits to Indians on reserves. In the same vein, the Appellant argued that although Cambrian College was not on the reserve, the fault for that circumstance lies with the federal and provincial governments and that in order to minimize the failure of the adequate provision of educational services by the respective governments, her reserve as well as several other reserves use what resources were available to establish programs for the sole purpose of benefiting the reserves in question. Several observations with respect to this submission are warranted. First, there is no evidence that the beneficiaries of her employment were exclusively Indian. Second, many of the students enrolled in the programs were not resident on a reserve. Third, the training equipped them for employment in the commercial mainstream in any licensed childcare setting in Ontario and was not limited to reserves.

[17]          A similar proposition was considered by Archambault J. in Desnomie v. The Queen[19] who observed that:

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 eight to ten months while they benefited 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 benefiting directly or indirectly from the services of this person.

The necessity argument raised in Desnomie v. The Queen, supra, was also dealt with by the Federal Court of Appeal[20] where Rothstein J.A. observed:

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.

The ratio in Desnomie applies equally to the present appeals.

[18]          I have therefore concluded that the imposition of tax by the Minister in this particular case does not amount to the erosion of the Appellant's entitlement of the Indian qua Indian on a reserve. Accordingly, the appeals are dismissed.

Signed at Ottawa, Canada, this 27th day of March, 2001.

"A.A. Sarchuk"

J.T.C.C.

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