Date: 20010403
Docket: 1999-28-IT-I
BETWEEN:
RONNIE JOSEPH ODJIG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
ISSUE:
[1] The issue is whether the Appellant's employment income from the Manitoulin Board of Education is exempt from tax in his 1996 taxation year by virtue of section 81 of the Income Tax Act and section 87 of the Indian Act.
FACTS:
[2] The Appellant is an Indian as defined in the Indian Act. At the relevant time he resided on Wikwemikong Reserve ("Reserve") on Manitoulin Island. During the 1996 taxation year the Appellant was engaged by the Manitoulin Board of Education as a classroom teacher to teach native studies and the Ojibwe language at Manitoulin Secondary School. Neither the Board nor the School was situated on an Indian reserve. Native students[1] comprised approximately 40 percent of the student population at the school and approximately 70 percent of the students who attended the Appellant's classes.
[3] Pursuant to the Education Act of Ontario the Manitoulin Board of Education entered into an agreement with the Reserve for the payment of tuition by the Reserve to the Board. The tuition funds were combined with other sources of revenue and used in the operation of the school system.
[4] The Manitoulin Board of Education evidently paid the Appellant's salary at the school.[2]
[5] It was agreed that the Manitoulin Board of Education was not an Indian organization controlled by one or more Indian Bands or tribal councils and was not dedicated exclusively to the social, cultural, educational or economic development of Indians.
[6] In computing taxable income for his 1996 taxation year the Appellant claimed 70 percent of his total salary of $50,000 as exempt from tax because 70 percent of his students were Indians.
ANALYSIS AND CONCLUSION:
[7] Section 87 of the Indian Act reads, in part, as follows:
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.
(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) is otherwise subject to taxation in respect of any such property.
[8] Paragraph 81(1)(a) of the Income Tax Act reads as follows:
There shall not be included in computing the income of a taxpayer for a taxation year,
... 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.
[9] In Nowegijick v. Her Majesty the Queen, 83 DTC 5041 the Supreme Court of Canada, at 5045 found that taxable income was personal property and said:
A tax on income is in reality a tax on property itself.
[10] Section 87 of the Indian Act requires determination of whether the Appellant's employment income was personal property situated on a reserve. In Williams v. Her Majesty the Queen, 92 DTC 6329 the Supreme Court of Canada said at 6336:
Determining the situs of intangible personal property requires a court to evaluate various connecting factors which tie the property to one location or another. In the context of the exemption from taxation in the Indian Act, there are three important considerations: the purpose of the exemption; the character of the property in question; and the incidence of taxation upon that property. Given the purpose of the exemption, the ultimate question is to what extent each factor is relevant in determining whether to tax the particular kind of property in a particular manner would erode the entitlement of an Indian qua Indian to personal property on the reserve.
[11] This, according to the Court, requires weighing the connecting factors. They are, in the context of unemployment insurance payments, in Williams, articulated by that court as:
(1) residence of the debtor;
(2) place where the benefits are paid;
(3) residence of the recipient; and
(4) location of the employment income.
The Court determined that the first two factors should be given limited weight in the unemployment benefits context. It then determined that because the qualifying employment was on the reserve, so too were the benefits subsequently received. The disposition of this case, because of its particular facts, is of limited assistance in the present appeal.
[12] In Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85 the Supreme Court of Canada, per LaForest, J. said at page 130:
I take it to be obvious that the protections afforded against taxation and attachment by ss. 87 and 89 of the Indian Act go hand-in-hand with these restraints on the alienability of land. ...
... The exemptions from the taxation and distraint have historically protected the ability of Indians to benefit from this property in two ways. First, they guard against the possibility that one branch of government, through the imposition of taxes, could erode the full measure of the benefits given by that branch of government entrusted with the supervision of Indian affairs.
and at page 131:
In summary, the historical record makes it clear that ss. 87 and 89 of the Indian Act, the sections to which the deeming provision of s. 90 applies, constitute part of a legislative "package" which bears the impress of an obligation to native peoples which the Crown has recognized at least since the signing of the Royal Proclamation of 1763. From that time on, the Crown has always acknowledged that it is honour-bound to shield Indians from any efforts by non-natives to dispossess Indians of the property which they hold qua Indians, i.e., their land base and the chattels on that land base. ...
... The fact that the modern-day legislation, like its historical counterparts, is so careful to underline that exemptions from taxation and distraint apply only in respect of personal property situated on reserves demonstrates that the purpose of the legislation is not to remedy the economically disadvantaged position of Indians by ensuring that Indians may acquire, hold and deal with property in the commercial mainstream on different terms than their fellow citizens. An examination of the decisions bearing on these sections confirms that Indians who acquire and deal in property outside lands reserved for their use, deal with it on the same basis as all other Canadians.
and at page 139:
It would follow that 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 respect of the assets acquired pursuant to that agreement, except, of course, if the property was situated on a reserve. ...
[13] In Folster v. Her Majesty the Queen, 97 DTC 5315 the Federal Court of Appeal dealt with a case in which Folster, the Appellant, was an Indian living on a reserve and employed by a hospital situated adjacent to the reserve. Approximately 80 percent of the patients of the hospital were Indians that resided on the reserve. The hospital had at one time been situated on the reserve and was relocated only because of a fire. The land on which the hospital was situated was in the process of being annexed to the reserve. The issue in the case was the situs of personal property, namely the employment income of the Appellant. This involved the application of the connecting factors test. Linden, J.A. added a new element, namely the preservation of the traditional way of life in Indian communities. At 5319 he quoted LaForest, J. in Mitchell as having:
... characterized the purpose of the tax exemption provision as, in essence, an effort to preserve the traditional way of life in Indian communities by protecting property held by Indians qua Indians on a reserve.
[14] In applying the connecting factors test to employment income, the learned justice advocated an approach that considers the "nature of the employment" and the "surrounding circumstances" of the employment. At page 5323 he said:
... In my view, having regard for the legislative purpose of the tax exemption and the type of personal property in question, the analysis must focus on the nature of the appellant's employment and the circumstances surrounding it. The type of personal property at issue, employment income, is such that its character cannot be appreciated without reference to the circumstances in which it was earned. Just as the situs of unemployment insurance benefits must be determined with reference to its qualifying employment, an enquiry into the location of employment income is equally dependent upon an examination of all the circumstances giving rise to that employment. Assessing those factors in the context of this case, I am of the view that the tax exemption must be accorded to the appellant's income in order to avoid the erosion of an Indian entitlement. The personal property at issue is income earned by an Indian who is resident on a Reserve, and who works for a Hospital which attends to the needs of the Reserve community; a Hospital that was once located on, and is now adjacent to the Reserve it services.
He said further:
In my view, when the personal property at issue is employment income, it makes sense to consider the main purpose, duties and functions of the underlying employment; specifically with a view to determining whether that employment was aimed at providing benefits to Indians on reserves.
[15] In Recalma v. Her Majesty the Queen, 98 DTC 6238, Linden, J.A., at 6239-40, summarized the relevant principles in applying the "connecting factors" test:
In evaluating the various factors the Court must decide where it "makes the most sense" to locate the personal property in issue in order to avoid the "erosion of property held by Indians qua Indians" so as to protect the traditional Native way of life. It is also important in assessing the different factors to consider whether the activity generating the income was "intimately connected to" the Reserve, that is, an "integral part of Reserve life", or whether it was more appropriate to consider it a part of "commercial mainstream" activity. ...We should indicate that the concept of "commercial mainstream" is not a test for determining whether property is situated on a reserve; it is merely an aid to be used in evaluating the various factors being considered. It is by no means determinative. The primary reasoning exercise is to decide, looking at all the connecting factors and keeping in mind the purpose of the section, where the property is situated, that is, whether the income earned was "integral to the life of the Reserve", whether it was "intimately connected" to that life, and whether it should be protected to prevent the erosion of the property held by Natives qua Natives.
[16] In Desnomie v. Her Majesty the Queen, 2000 DTC 6250, the taxpayer was an Indian employed as Executive Director of a non-profit corporation whose purpose was to preserve and advance the education goals of Indian people. He lived in Winnipeg and worked at his employer's offices. On appeal of an assessment disallowing his exemption from tax, this Court considered the five above described connecting factors and found none of them helpful in connecting the Appellant's employment income to a reserve. The Federal Court of Appeal dismissed that Appellant's appeal. In his Reasons for Judgment Rothstein, J.A. at 6254-55 said:
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. ...
[17] In Southwind v. The Queen, 98 DTC 6084 (F.C.A.) Linden, J.A. stated at page 6087:
In concluding, it should be noted that section 87 does not exempt all Natives resident on a Reserve from income taxation. The process of determining the tax status of income earned by Natives on Reserves has become quite complex, depending on a sophisticated analysis of a series of factors. It may appear to some that inconsistencies exist in the treatment of the various cases, but each of them depends on its unique facts. All we can do is evaluate the factors and draw the lines, as best we can, between business income and employment income that is situated on the Reserve and integral to community life, and income that is primarily derived in the commercial mainstream, working for and dealing with off-reserve people.
[18] In Brant v. The Queen (1998) 152 F.T.R. 28, Rothstein, J.A. considered the composition of the Appellant's clients in applying the connecting factors test. He stated at page 33:
The plaintiff says 50% of his clientele are Indians and that this is a strong connecting factor. The defendant says 50% of the plaintiff's clientele are non-Indians and that this is a weak connecting factor. The cases such as Southwind suggest that where a business caters to Indians and non-Indian customers alike, this is an indication it is a commercial mainstream business which would tend to be a factor that discounts the property in question from being considered as situated on the reserve. That is the situation here.
[19] The Court asked Appellant's counsel, for the purpose of exemption, how he tied the employment income to the statutory requirement that the personal property of an Indian be situated on a reserve. His response was "... you tie that through the tuition agreement". He said that the agreement provided that:
The parties agree to actively recruit provincially qualified Amerindian teachers in fulfilling future vacancies on their staff, provided the qualifications and abilities are judged to be equal to other applicants.
... The parties agreed that where the numbers warrant the Board shall offer the Ojibwe language instruction in its secondary schools according to Provincial Ministry of Education Native Second Language Guidelines and Memorandum 91A.
[20] Counsel submitted that the Reserve was paying for a language teacher through the tuition agreement and that although the Appellant was paid by the School Board, the purpose of his employment was the fulfilment of that obligation. He added that the Appellant was an Indian living on a reserve providing services that benefited children on a reserve which benefits related specifically to them being native children.
[21] It has been established that taxable income is personal property and that, therefore, employment income is personal property. The question for determination is whether the employment income is situated on a reserve. The connecting factors as restated in Desnomie, are:
(1) Residence of employer.
(2) Residence of employee.
(3) Where the work was performed.
(4) Where the employee was paid.
(5) The nature of the services performed or the special circumstances in which they were performed.
With respect to the first four factors:
(1) The employer was located on land not on a reserve.
(2) The Appellant employee resided on a reserve.
(3) The Appellant employee performed his work entirely on land not on a reserve.
(4) The Appellant employee was paid by the employer on land not on a reserve.
(5) Do the "special circumstances", combined with the residence of the Appellant on a reserve "tip the balance"[3] in favour of the Appellant? In this appeal the Appellant lived on the Reserve which paid tuition to the Manitoulin Board of Education. The majority of native students at the public school came from the Reserve. Native students comprised approximately 40 percent only of the student population and 70 percent of the Appellant's class. The Appellant taught the Ojibwe language and native studies.
However, the native students obviously were taught regular curriculum courses as well as Native studies. Also, the Appellant was teaching under contract in a public school not situated on a reserve. He was paid at that school. He was paid out of the general revenue of the Board of Education.
I have concluded that the "special circumstances" outlined above, even though the Appellant resided on a reserve, cannot justify categorizing the Appellant's employment income as "personal property ... situated on a reserve" within the meaning of paragraph 87(1)(b) of the Indian Act. In the words of La Forest, J. in Mitchell (supra):
An examination of the decisions bearing on these sections confirms that Indians who acquire and deal in property outside lands reserved for their use, deal with it on the same basis as all other Canadians.
[22] Accordingly, the appeal will be dismissed.
Signed at Vancouver, British Columbia this 3rd day of April, 2001.
"R.D. Bell"
J.T.C.C.