Tax Court of Canada Judgments

Date: 19971128

Docket: 94-2675-IT-G

BETWEEN:

EVERETT KAKFWI,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bowie, J.T.C.C.

[1] The Appellant is an Indian, as defined by the Indian Act,[1] and a member of the Fort Good Hope Dene Indian Band (the Band). The Band is located at Fort Good Hope in the Northwest Territories, within the boundaries of Treaty No. 11, to which it is an adherent. In 1992 the Appellant was Chief of the Band, for which he was paid a salary of $56,420.00. That salary was paid by the Band, out of funds provided to it by the Crown in right of Canada under a program known as Band Support Funding.[2] What is at issue in this appeal is whether or not that salary was subject to income tax. The Appellant relies on subsections 87(1) and (2) and paragraph 90(1)(b) of the Indian Act together with paragraph 81(1)(a) of the Income Tax Act,[3] in support of the position that his salary was exempt.

Indian Act 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,	Loi sur les Indiens 87(1) Nonobstant toute autre loi fédérale ou provinciale, mais sous réserve de l'article 83, les biens suivants sont exemptés de taxation :
(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	a) le droit d'un Indien ou d'une bande sur une réserve ou des terres cédées; b) les biens meubles d'un Indien ou d'une bande situés sur une réserve.
(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.	(2) Nul Indien ou bande n'est assujetti à une taxation concernant la propriété, l'occupation, la possession ou l'usage d'un bien mentionné aux alinéas (1)a) ou b) ni autrement soumis à une taxation quant à l'un de ces biens.
90(1) For the purposes of sections 87 and 89, personal property that was	90(1) Pour l'application des articles 87 et 89, les biens meubles qui ont été :
...	...
(b) given to Indians or to a band under a treaty or agreement between a band and Her Majesty,	b) soit donnés aux Indiens ou à une bande en vertu d'un traité ou accord entre une bande et Sa Majesté,
shall be deemed always to be situated on a reserve.	sont toujours réputés situés sur une réserve.
Income Tax Act 81(1) There shall not be included in computing the income of a taxpayer for a taxation year,	Loi de l’impôt sur le revenu 81(1) Ne sont pas inclus dans le calcul du revenu d’un contribuable pour une année d’imposition:
(a) an amount that is declared to be exempt from income tax by any other enactment of the Parliament of Canada, 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;	a) une somme exonérée de l’impôt sur le revenu par toute autre loi fédérale, autre qu’un montant reçu ou à recevoir par un particulier qui est exonéré en vertu d’une disposition d’une convention ou d’un accord fiscal conclu avec un autre pays et qui a force de loi au Canada;

[2] The Crown contends that section 87 has no application in this case because no reserve has been set aside for the Fort Good Hope Band. The Appellant’s salary, therefore, cannot be said to be “situated on a reserve” within the meaning of that expression as it is used in section 87, so as to exempt it from tax. The Crown also takes the position that paragraph 90(1)(b) does not apply. As to this, it says that the Appellant’s salary was not paid from money given to the Band “... under a treaty or agreement between [the] Band and Her Majesty ...”, as the words of that paragraph require, and even if the money were so given, it was no longer subject to the deeming provision once it had passed, in the form of salary, from the Band to the Appellant.

[3] At the opening of the trial I was advised by counsel that to try the issue whether or not the Fort Good Hope Band is situate on a reserve would require perhaps as much as two weeks of evidence, including the evidence of expert witnesses. The cost of this would be considerable, and would be unnecessary if the issue were ultimately to be resolved in favour of the Appellant on the basis of section 90. For this reason, I agreed to the joint request of counsel that the trial proceed only on the section 90 issue, and be resumed to deal with the question whether or not the Band is situate on a reserve only if the Appellant does not succeed under that section. As will appear, I have reached the conclusion that the Appellant is entitled to succeed on the basis of the deeming provision in section 90, and so it will therefore not be necessary to resume the trial.

[4] The evidence in support of the Appellant’s case consists principally of a number of documents, including submissions to the Treasury Board of Canada and decisions of that body in the form of letters to officials of the department of government responsible for native affairs from time to time,[4] a letter from the Department to the Appellant in his capacity as Chief of the Band, and the application made by the Band to the Department for BSF for the relevant year. In addition, counsel read in certain answers given on the examination for discovery of an officer of the Crown, Mr. Mansel Barstow, a Senior Policy Analyst in the Department, whose involvement with the BSF program extends over some 20 years or more. Mr. Barstow was also called by counsel for the Crown.

[5] From the evidence of Mr. Barstow, and from the documents, it is apparent that through the BSF program the government of Canada has, over a period of some three decades, shifted responsibility for the delivery of certain basic programs for the benefit of native people from the Department to Band Councils, not only in the Northwest Territories, but throughout the country. To do so, of course, required that the necessary funding be made available to the Bands, not only to carry out the programs in question, but also to provide for a level of Band government adequate to administer the programs and the funding for them. It was for this that the government initiated the BSF program. It was explained this way in a letter from the Area Manager of Funding and Community Development of the Department to Chief Kakfwi in September 1992:

Band Support Funding is intended to provide Bands with sufficient core funding to allow them to administer their affairs and adequately represent the interests of their members. All duly constituted Band Councils are eligible to receive the BSF grant allocated to them each year through the BSF formula. Band Councils may utilize the funds provided to defray such expenses as:

·          Honoraria and travel expenses for the Chief and Councillors;

·          Salaries and benefits for administrative staff;

·          Office rent, utilities, janitorial services, supplies and equipment;

·          Telephone and facsimile transmission costs;

·          Postage and bank charges; and

·          Annual audit and other professional fees.

PLEASE NOTE: The above list is meant simply as a guide for budgeting purposes. The only item which Council must budget for under the BSF policy is the annual audit fee.

[6] There are three separate questions which I must answer to determine whether or not the Appellant can succeed under this branch of the case.

1. Are the BSF funds paid to the Band pursuant to an agreement?

2. If so, is it an agreement of the kind referred to in paragraph 90(1)(b) of the Indian Act?

3. If the answers to these questions are affirmative, does paragraph 90(1)(b) have the effect of deeming the Appellant’s salary to be paid to him on a reserve, or does its deeming effect end with the disbursement of the funds by the Band?

Question 1 - is there an agreement?

[7] The words “agreement” in the English language, and “accord” in the French language, both connote a concept broader than simply “a contract” or “un contrat”. It is not every agreement that may be enforced at law. The Federal Court of Appeal, in Bow River Pipelines Ltd. v. The Queen, recently considered the breadth of the word agreement, and found it to encompass more than simply a legally binding contract.[5] Desjardins J.A., in reasons concurred in by Decary J.A. and Chevalier D.J., specifically approved the conclusion of Christie A.C.J. in this Court that the words “agreement in writing”, found in a transitional provision of the Income Tax Act dealing with resource properties, did not require that the agreement create contractual rights and obligations.

[8] In my view the requirement that the funds must have been paid under an agreement is satisfied in this case. The letter of September 1992, from which I have quoted above, together with the Band’s application for the funds, constitute an agreement that the funds will be paid by the Department, that they will be used by the Band for their intended purpose, and that the Band will submit to an audit as to the use of them as required. It is certainly arguable that this falls short of an enforceable contract, but I am satisfied that it comprises an agreement.

[9] Before leaving the first question, I should note that I was invited by Mr. Carroll to find that the BSF funds were paid to the Band pursuant to Treaty No. 11. I do not accept this submission, for reasons which I will come to shortly.

Question 2 - is it an agreement to which paragraph 90(1)(b) applies?

[10] The deeming provision in section 90 of the Indian Act was considered by the Supreme Court of Canada in the Mitchell^[6]case. The principal judgment is that of La Forest J., and so far as it concerns the interpretation of section 90 it is the opinion of six of the seven judges who comprised the Court. In it he made an exhaustive review of sections 87, 88 and 90, both textually and in their historical context, and of the jurisprudence surrounding them, and concluded that the purpose and effect of section 90 is to extend the protections of sections 87 and 88 of the Indian Act to property acquired by Indians from the Crown in right of Canada pursuant to treaties, or agreements ancillary to treaties, no matter where it may physicallly be situated. As he put it:[7]

... the terms ‘treaty’ and ‘agreement’ in s. 90(1)(b) take colour from one another. It must be remembered that treaty promises are often couched in very general terms and that supplementary agreements are needed to flesh out the details of the commitments undertaken by the Crown;

[11] As to the purpose of these provisions, he said:^[8]

... the statutory notional situs of s. 90(1)(b) is meant to extend solely to personal property which enures to Indians through the discharge by “Her Majesty” of her treaty or ancillary obligations.

[12] What was at issue in the Mitchell case, so far as it was concerned with paragraph 90(1)(b) of the Indian Act, was simply whether the reference there to “Her Majesty” was limited to the Crown in right of Canada, or included the Crown in right of the provinces as well. It was in that context that the Court considered that the reference to agreements was concerned with obligations of the Crown ancillary to its treaty obligations. The Court did not have to, and did not, define what sorts of agreements would be found to be “ancillary obligations”. It was required only to deal with the question whether or not the protection of a deemed situs on a notional reserve should be extended to property received by the Indian Appellants from the Crown in right of Manitoba as the result of what was, in effect, a commercial transaction. Throughout his analysis La Forest J. differentiated between two types of property - that acquired and held by Indians in their capacity as Indians, which paragraph 90(1)(b) is there to protect through the concept of a notional situs, and that which is held by Indians in the course of and as the result of their activities in what he calls “the commercial mainstream”. This distinction is explained by him in the following way:^[9]

When Indian bands enter the commercial mainstream, it is to be expected that they will have occasion, from time to time, to enter into purely commercial agreements with the provincial Crowns in the same way as with private interests. The provincial Crowns are, after all, important players in the market-place. If, then, an Indian band enters into a normal business transaction, be it with a provincial Crown, or a private corporation, and acquires personal property, be it in the form of chattels or debt obligations, how is one to characterize the property concerned? To my mind, it makes no sense to compare it with the property that enures to Indians pursuant to treaties and their ancillary agreements. Indians have a plenary entitlement to their treaty property; it is owed to them qua Indians. Personal property acquired by Indians in normal business dealings is clearly different; it is simply property anyone else might have acquired, and I can see no reason why in those circumstances Indians should not be treated in the same way as other people.

[13] It was argued by Mr. Carroll for the Appellant that the agreement here, which I have found is comprised of the Crown’s offer of the BSF funding and the Band’s application for it, together with its agreement to use the funds only for the intended purposes, and to submit to an audit in that behalf, springs from the terms of Treaty No. 11. The Band, he says, lies within the boundaries of the Treaty, and it receives benefits under it. The agreement, then, is simply a vehicle for the delivery of a part of those benefits. Given the uncontested evidence of Mr. Barstow, that conclusion is not open to me. His evidence was that the BSF program was not related to any treaty rights, and that it was made available in the same way, and on the same terms, to all Bands across the country. In my opinion it is not necessary, however, for the Appellant to show that the BSF received by the Band has a direct connection to Treaty No. 11, or any treaty, in order to bring it within the words “... under a[n] ... agreement ...” as they appear in paragraph 90(1)(b).

[14] As I have pointed out above, the distinction drawn by the Supreme Court in Mitchell is between what La Forest J. calls “... property [which] enures to Indians as an incident of their status ...” on the one hand, and that which they acquire “... when engaging in the cut and thrust of business dealings in the commercial mainstream ...” on the other.[10] It is beyond question that the BSF funds fall into the former category, and not the latter. The only purpose for which Parliament has appropriated them is to enable Bands throughout the country to administer their own affairs, at least to a greater degree than was previously possible. Short of benefits paid directly under the specific terms of a treaty, or the consideration for the sale of Indian lands, it is difficult to see what could better exemplify property held by Indians qua Indians. It would defeat the purpose of the program, and of sections 87 and 89 of the Indian Act as well, if these funds were left lacking the protection of paragraph 90(1)(b) in the case of Bands which are not situate on a reserve. In my view it is to avoid exactly that type of anomaly that section 90 was enacted. I find that the agreement here in issue is one that is within the contemplation of paragraph 90(1)(b), notwithstanding that it cannot be said to be ancillary to a treaty.

Question 3 - does paragraph 90(1)(b) deem the Appellant’s salary to be paid on the reserve?

[15] It was argued by Mr. Wheeler for the Crown that even if the protection of paragraph 90(1)(b) is found to extend to the BSF funds in the hands of the Band in this case, the appeal still must fail (at least on this ground) because the protection extends only to the Indian, or the Band, receiving the property directly from Her Majesty under the treaty or agreement, and not to a subsequent recipient. That, in this case, is the Fort Good Hope Band, and not the Appellant. When part of those funds are subsequently turned over by the Band to the Appellant in payment of his salary, it is argued, they are no longer within the protection of the deeming provision.

[16] In my view that is much too mechanical and restrictive an interpretation of paragraph 90(1)(b), and I am bound to reject it in favour of a functional one which will achieve the purpose of the section,[11] taking into account the whole legislative scheme. It would be an odd result indeed if I were to find that Parliament intended that these funds should have the protection of section 87 in the hands of the Band through their location on a notional reserve situs, but that that protection disappears when the Band pays a part of them to the Appellant, no doubt at the Band’s offices, for fulfilling the important traditional office and administrative role of Chief of the Band. Such an “intuitively anomalous” result should be avoided if the statutory language admits of another interpretation,[12] as the language here does. The operative phrase which has the deeming effect in subsection 90(1) reads:

shall be deemed always to be situated on a reserve

sont toujours réputés situés sur une réserve

(emphasis added)

[17] The presumption against tautology requires that the words “always” in the English version and “toujours” in the French version be given some meaning. They must mean something more than simply “on each occasion that such a payment is made”, as that result would be achieved without their inclusion in the legislative text.

[18] The preferable interpretation, and the true meaning of the words intended by Parliament, is that the funds shall be deemed to be situated on a reserve for so long as they are traceable, and are to be found in the hands of either an Indian or a Band. In my view it is only through this interpretation that full effect can be given to the provision to ensure that funds received by native people, and by Bands, under agreements with the government of Canada receive the protection from taxation and from execution which Parliament clearly intends them to have. Protection of the funds only in the hands of the Indian or Band which is the initial recipient would be at best a half-hearted protection. It is to be expected that funds provided to Bands under the BSF program will, at least in part, be used to make payments to members of the Band, which will have the character of income in their hands. A number of potential uses of the funds may be found in the September 1992 letter from which I have quoted. Some payees, for example for telephone, postage and bank charges, will be non-Indians. Others, such as the Appellant, will be Indians. Funds used to make payments to non-Indians will not, of course, continue to be deemed to be situate on the reserve. But so long as they are in the hands of a person, or a Band, to whom sections 87 and 89 of the Indian Act may apply, the legislation can only achieve its purpose if the deeming effect of paragraph 90(1)(b) continues.

[19] In conclusion, I find that the salary paid to Chief Kakfwi in 1992 was paid out of funds which, by reason of paragraph 90(1)(b), are deemed to be situate on a reserve, both in the hands of the Band, and subsequently in the hands of the Appellant. The appeal is allowed, with costs, and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the salary received by the Appellant from the Band is not to be included in computing the income of the Appellant for the 1992 taxation year.

Signed at Ottawa, Canada this 28th day of November 1997.

"E.A Bowie"

J.T.C.C.

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