Tax Court of Canada Judgments

Docket: 2002-76(IT)I

BETWEEN:

ALEXANDER AKIWENZIE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

_______________________________________________________________

Appeals heard on December 17, 2002, at Ottawa, Ontario,

By: The Honourable Judge Campbell J. Miller
Appearances:
Counsel for the Appellant:	Stephen G. Reynolds
Counsel for the Respondent:	Justine Malone

_______________________________________________________________

JUDGMENT

          The appeals from assessments of tax made under the Income Tax Act for the 1997 and 1998 taxation years are allowed, with costs in the amount of $200, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant's employment income in both years is personal property situate on a reserve and exempt from taxation.

Signed at Ottawa, Canada, this 25th day of February, 2003.

"Campbell J. Miller"

J.T.C.C.

Citation: 2003TCC68

Date: 20030307

Docket: 2002-76(IT)I

BETWEEN:

ALEXANDER AKIWENZIE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

AMENDED REASONS FOR JUDGMENT

Miller J.

[1]      As a status Indian, Mr. Akiwenzie claimed deductions from his income of $26,397.88 and $29,007.00 in 1997 and 1998, respectively. These amounts, according to Mr. Akiwenzie, represent the 45 per cent of his employment income which is personal property of an Indian situated on a reserve within the meaning of the Indian Act. The Minister disallowed the deductions on the basis that these amounts were part of Mr. Akiwenzie's employment income from his job with the Department of Indian Affairs and Northern Development (DIAND), no portion of which constituted personal property of an Indian situated on a reserve. Mr. Akiwenzie appeals the Minister's assessments in the informal procedure.

[2]      The issue is whether all or any part of Mr. Akiwenzie's income from his employment with DIAND is exempt from tax pursuant to subsection 87(1) of the Indian Act, which exempts the personal property of an Indian situated on a reserve. Although this case is not entirely on all fours with those few cases in which the Appellants have been successful on a finding that employment income is situated on a reserve, an analysis of the factors connecting Mr. Akiwenzie's employment income to reserves leads me to the same conclusion. His employment income is personal property situated on a reserve.

Facts

[3]      Mr. Akiwenzie was born on the Reserve at Cape Croker, Anishnabe. He made it very clear from the outset that all he has done throughout his life is to benefit Indians on a Reserve. In his opening remarks he stated:

Everything that I have been doing to today, even inside the Department of Indian Affairs was dealing directly with all Indians. All Indians, not just the Chippewa Nation, and not for my family as Quazies, or not for myself as an individual.

Everything I have done since I have been 15 to 53 has been done for Indian people on a national level, from coast to coast.

You can see on the C.V. as well that I am a War Chief with the Nation of Warriors across Canada, and I still hold that position while I am inside the Department of Indian Affairs.

[Transcript page 13 lines 9 to 20]

[4]      His approach to life was equally clear and passionate: "I am a First Nation", "I live Indian", "I have not given up my rights even though I work for the Indian Affairs".

[5]      Mr. Akiwenzie has been bestowed considerable honours to speak on behalf of Indian people at a national level. He is a spiritual leader in his community. It was vividly evident in his testimony that he fears that the Chippewa, the Crees and all nations are jumping into a North American melting pot and in so doing, disappearing. His life has been dedicated to the restoration of pride to the Indian people and to the Reserves. He was involved at Wounded Knee, Gustafson Lake, at Ipperwash. He married a Mohawk woman from Akwasasne, and in the years in question, lived on a Mohawk reserve. His children attend school on the Akwasasne Reserve. I would describe Mr. Akiwenzie as an active, extremely well-connected leader in Indian affairs nationally. I say all this to establish the context of Mr. Akiwenzie's employment.

[6]      Mr. Akiwenzie has worked for the Canadian Government for 20 years, starting as an Education Social Counsellor with DIAND. In that role he educated Aboriginal students, many of whom have since become chiefs in their communities. He then went to serve as an advisor to the Director General for Policy Coordination at DIAND. His primary job in that capacity was to go to the Yukon and investigate why it was so hard to relocate Indians of a certain community. Before going to the Yukon, he was involved in constitutional talks as a political advisor for the Native Council of Canada.

[7]      He remained in the Yukon for seven years, becoming Associate Director for Lands, Revenues and Trust. On his return to Ottawa, he described his sole responsibility was to bring the Indian people to the table. This was firstly in connection with an environmental project called the Buffalo Point Initiative. Indeed, he brought the former Chief of the Assembly of First Nations, Phil Fontaine, to the table. As Mr. Akiwenzie put it, "Indian people would finally have a say inside the Department of Indian Affairs".

[8]      In all his positions to that point, Mr. Akiwenzie confirmed that he worked on reserves, though it was unclear the percentage of time physically on reserves. He was adamant, however, that it all entailed dealing with Aboriginal people on the reserves:

In my mind I spent all the time on my reserve, because I'm dealing all the time with Indian people from the reserve.

[9]      Around this time in 1996 to 1997, Mr. Akiwenzie started also working on what he called TEK: Traditional Ecological Knowledge of Aboriginal people. Mr. Akiwenzie described TEK as the way Indians think, and that is what the government wanted to know. He was to bring Aboriginal people, the right people, to the table. It was then for them to determine if they would give TEK to the government. According to Mr. Akiwenzie, it was not up to him to write his own report about what TEK meant.

[10]     The Associate Deputy Minister was interested in Mr. Akiwenzie's views. A new job description for Mr. Akiwenzie was prepared by the Department Manager, First Nations Relations and Partnership Consultants. This entitled Mr. Akiwenzie to PM-6 status, with the accompanying salary. According to Mr. Akiwenzie, and confirmed by his Manager, Mr. Ryan, the job description was written to obtain the PM-6 standing, though bore little resemblance to what Mr. Akiwenzie actually did. For example, it referred to writing reports which was not something Mr. Akiwenzie ever did.

[11]     This was in 1998. Mr. Akiwenzie was to go and develop relationships with the Indian communities - 634 of them. He indicated that, during this time, he met with people from 480 of those reserves. As National War Chief in Canada, he would have connections with every one of those reserves. He got people who previously would not deal with DIAND to come to meetings. It was also around this time, late 1997 and early 1998, that steps were being taken to form the Joint Initiative. The Department's objective for the Joint Initiative was to develop a plan to move greater control of current land and trust service responsibilities to First Nations. The First Nations objective was to protect and advance the interests of First Nations. Mr. Akiwenzie described the Joint Initiative as "sort of like coming to the Treaty table again"[1]. Twenty-one business lines, as Mr. Akiwenzie called them, were identified by the Joint Initiative for focussing the review of the Indian Act. While there was some preliminary work on the Joint Initiative, as early as 1997, it formally was established later in 1998. Mr. Akiwenzie testified that the government said that they were not moving fast enough on this initiative so they forced change through the Band Governance Act. Mr. Akiwenzie clearly regretted this move as he felt the Joint Initiative was ready to work to change the Indian Act.

[12]     Mr. Akiwenzie estimated his time physically spent on reserves during the period in question, not taking into account his personal life living on a reserve, was approximately 20 per cent of his working time. The balance of his work, primarily from his office in Hull, was dealing directly with Native communities and their leaders. He commuted from his reserve to work, though acknowledged that approximately 15 nights per year he was required to stay over.

[13]     Mr. Akiwenzie submitted documents describing the history of DIAND and its mandate, rules and responsibilities. Mr. Akiwenzie's assessment was that DIAND was not fulfilling its obligations to First Nations people. He concluded his examination-in-chief with the following comment:

So, I just wanted to say that I hope you understand that I am an Indian first, and I'm an Indian always. ... I am an Indian man, and traditionally, I have never stopped working for Aboriginal people, that you guys call status Indians on reserve.

(Transcript page 106, lines 9 to 14.)

[14]     Mr. Hugh Ryan testified for the Crown. He was Mr. Akiwenzie's direct supervisor during 1997 and 1998. He described Mr. Akiwenzie's role of building partnerships for DIAND, due to his ability to communicate with Aboriginal communities. He indicated that a non-Indian could not have provided the services Mr. Akiwenzie provided - "It would have never worked".[2] He regarded Mr. Akiwenzie's input as "absolutely unique".[3]

[15]     Mr. Ryan also confirmed Mr. Akiwenzie's written job description was to achieve a certain level within the government, more than accurately describing his job. He further confirmed Mr. Akiwenzie was on the road a lot visiting Aboriginal leaders.[4]

Appellant's Arguments

[16]     The Appellant started his argument describing the framework of what he called the three-part test set out in the Supreme Court of Canada's decision in Williams v. Canada[5] in determining whether personal property is situated on a reserve. It is necessary to weigh connecting factors and analyze them in light of:

          (i)       the purpose of the Indian Act exemption;

          (ii)       the type of property; and

          (iii)      the incidence of tax on the property.

[17]     He noted that Williams dealt with unemployment insurance benefits rather than employment income and, therefore, different factors may be relevant in determining whether taxing employment income would erode the entitlement of the Indian qua Indian on a reserve. Mr. Reynolds described Mr. Akiwenzie as having a fiduciary obligation on the part of the Crown towards First Nations people, and that fiduciary obligation cloaks the relationship and distinguishes this case from cases such as Diabo[6] and Monias.[7] Further, Mr. Reynolds maintains that Mr. Akiwenzie's position was not in the commercial mainstream, as has been found in other cases. Mr. Akiwenzie's position was unique.

[18]     Mr. Reynolds explored the meaning of "Indian qua Indian". Mr. Akiwenzie, he argues, is effectively establishing a relationship which is Indian qua Indian, wherever he goes, be it his home reserve or any reserve across the country. Indian qua Indian is not to be limited to the Indian who is earning income on the reserve, exercising his lifestyle and rights as an Indian on that particular reserve. Mr. Akiwenzie is, in his role with DIAND, effectively implementing on the ground the Indianess component. He is preserving, advocating and trying to protect the integrity of reserves as economic units, as social units and as political units and as First Nations. Mr. Reynolds quotes Justice Linden's comments in the Folster decision[8] as a good summary of the law in this area:

Over the years, Courts have tried to fashion a simple, bright-line rule for determining whether an Indian's personal property is "situated on a reserve". These efforts have proved less than satisfactory. Although this condition appears simple enough to apply, it is a difficult one to apply in the context of intangible property such as wages and other forms of income. The reason for the difficulty is that the application of a situs rule to an aspect of property which has no physical or local existence is bound to be notional and risks being arbitrary...[9]

The history and purpose of section 87 were fully explored in Mitchell v. Peguis Indian Band. In that case, La Forest J. traced the history of section 87 back to an 1850 statute which provided, essentially, that no taxes were to be levied upon an Indian residing on unceded or reserve lands. The exemption did not take the shape of the present-day provision, however, until The Indian Act 1876. Section 64 of that Act provided:[10]

64. No Indian or non-treaty Indian shall be liable to be taxed for any real or personal property, unless he holds real estate under lease or in fee simple, or personal property, outside of the reserve or special reserve, in which case he shall be liable to be taxed for such real or personal property at the same rate as other persons in the locality in which it is situate.

La Forest J. highlighted the fact that, in this section, "Indians holding lands or personal property in their own right outside the reserve hold that property on the same basis as all other similarly situated property holders". This specific condition, although not included in section 87, provides some historical insight into what the tax exemption was originally designed to achieve, and, consequently, into the contours of its current application, as will be more fully developed below.

La Forest J. justified the historical evolution of this legislative policy on the basis that it was a protective device designed to respond to the negative effects on our First Nation peoples of the assertion of British sovereignty over what is now Canada....

[19]     In reviewing the circumstances of this case, Mr. Reynolds notes that Mr. Akiwenzie lives on a Mohawk reserve, his wife's, not his. His employer is headquartered in Hull, Québec. Twenty per cent of Mr. Akiwenzie's work was on reserves, but 100 per cent of his work was specific to reserves. Mr. Reynolds discounts the principles that the income must be attributable to a specific reserve, claiming it is the nature of the work which should be given more weight.

[20]     Mr. Reynolds concludes his argument by addressing the nature of the employer, DIAND. He suggests that the Department sets itself apart by its mandate to fulfil the Government's lawful obligations to Aboriginal peoples arising from treaties. It is not consumer and commercial relations. It is not Treasury Board. It is not labour. It is a fiduciary fulfilling obligations to the First Nations people, and that was at the heart of Mr. Akiwenzie's role with the Government.

Respondent's Position

[21]     Ms. Malone indicated at the outset that it is Canada Customs and Revenue Agency's policy to grant a tax exemption on an apportionment basis for the number of days a person was actually physically working on a reserve. In Mr. Akiwenzie's case, this has been estimated by the Crown at 15 per cent, so only 85 per cent of his salary, according to Ms. Malone is at issue. The Respondent agrees that the only issue in this case is whether Mr. Akiwenzie's employment income is situated on a reserve.

[22]     Ms. Malone also relies on comments from the Mitchell v. Peguis Indian Band[11] case to set the context for her argument. Specifically Justice La Forest's statement:

... But I would reiterate that in the absence of a discernible nexus between the property concerned and the occupancy of reserve lands by the owner of that property, the protections and privileges of ss. 87 and 89 have no application.

I draw attention to these decisions by way of emphasizing once again that one must guard against ascribing an overly broad purpose to ss. 87 and 89.    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 interests 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. ...

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 marketplace.    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.

[23]     The Respondent contends that Mr. Akiwenzie was indeed in the commercial mainstream as also stipulated in the Federal Court of Appeal decision in Shilling v. M.N.R:[12]

However, in the context of determining the location of intangible property for the purpose of section 87, "commercial mainstream" is to be contrasted with "integral to the life of a reserve": Folster, supra, at paragraph 14. There is no doubt that, if Ms. Shilling had been an employee of AHT, her employment income would not have been exempt from income tax. The purpose of the tax exemption in paragraph 87(1)(b) is not to address the general economically disadvantaged position of Indians in Canada.

[24]     Ms. Malone went on to suggest that Shilling stands for the proposition that the work has to be linked to a specific reserve, and no such link exists with Mr. Akiwenzie. His work is directed to benefiting Indians generally, but it is not integral to the life of a particular reserve. This is distinguished from the Folster case where the work was in the hospital near a reserve to care for people on a specific reserve. Just because Mr. Akiwenzie's work benefits Indians does not take it outside the commercial mainstream.

[25]     The Respondent argues there is no discernible nexus between the employment income and the occupancy of reserve lands by the Appellant as required by La Forest J. in Mitchell v. Peguis Indian Band. While he lives on the reserve, he does not perform work on this particular reserve. Most of his time is spent in the office in Hull, and while the work focuses on Indian affairs, it does not provide benefits to Indians residing on any reserve to which the Appellant's income can be connected.

[26]     The Respondent goes on to review the connecting factors to be given weight:

(i)       residence of the Appellant, which the Respondent acknowledges was on a reserve;

(ii)       residence of the employer, which the Respondent puts in Hull;

(iii)      where the work is performed, which the Respondent states is primarily in Hull; and

(iv)      the nature of employment and the circumstances surrounding it.

With respect to this last factor the Respondent suggests that the benefit to the Native community is not an independent free-standing connective factor, but is more a standard by which to evaluate the nature of the employment. Benefit to Indians is simply not enough. It needs to be connected to a specific reserve. She relies on the following passage from the Federal Court of Appeal decision in Monias:[13]

That the work from which employment income is earned benefits Indians on reserves, and indeed may be integral to maintaining the reserves as viable social units, is not in itself sufficient to situate the employment income there. It is not the policy of paragraph 87(1)(b) to provide a tax subsidy for services provided to and for the benefit of reserves. Rather, it is to protect from erosion by taxation the property of individual Indians that they acquire, hold and use on a reserve, although in the case of an intangible, such as employment income, it is the situs of its acquisition that is particularly important.

By enacting paragraph 87(1)(b) Parliament made an important exception to the principle that those similarly situated should be treated in the same way for tax purposes. However, the paragraph cannot be read as exempting from income tax Indians' employment income that was not clearly earned in circumstances that link its acquisition to a reserve as an economic base.

[27]     The reserve has to be seen as the economic base from which employment income is derived. And if the work is not related to a specific reserve, it should not be given so much weight.

[28]     Ms. Malone concludes that Mr. Akiwenzie earned his income in the commercial mainstream, not qua Indian on a reserve and, therefore, should not benefit from the protection that the Indian Act confers on the reserve system.

Analysis

[29]     The only issue in this case is the situs of Mr. Akiwenzie's employment income. If I find it is situated on a reserve then the interplay of section 87 of the Indian Act and paragraph 8(1)(a) of the Income Tax Act kicks in to exempt such employment income from taxation, as Mr. Akiwenzie meets all other criteria of these provisions, which read:

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,

(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.

Income Tax Act

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;

[30]     There is certainly no dearth of authorities on the issue of the situs of employment income for purposes of claiming the section 87 exemption. The connecting factors' test has been applied on several occasions by the Federal Court of Appeal and a uniform means of analysis appears to have evolved. While I do not wish to provide an exhaustive review of the precedents to which I am bound, I do wish to highlight how I perceive the principles to have evolved from the Supreme Court of Canada's establishment of the connecting factors test in the Williams case, through several Federal Court of Appeal decisions dealing more specifically with employment income, as opposed to unemployment insurance benefits.

[31]     In Williams, the connecting factors test was created to provide a principled approach to the determination of the situs of personal property for purposes of the application of section 87. The difficulty of course is the many locations to be considered - being the employers', the employees', where payment was made, where the work was carried out and where the employment income was used, amongst others. It is necessary to identify the relevant connecting factors in light of the purpose of the section 87 exemption, the type of property and the nature of the tax. It is then necessary to determine if taxing such property erodes the entitlement of an Indian qua Indian on a reserve. The Court in Williams emphasized that the test as just summarized pertained to unemployment insurance benefits. It was up to subsequent decisions to apply these principles to cases involving employment income - no such case has been heard as yet by the Supreme Court of Canada, as they have refused leave to appeal in three of the Federal Court of Appeal decisions I am about to review.

[32]     The first Federal Court of Appeal decision subsequent to Williams which I will review was the Folster case. Acknowledging the Williams requirement to put the review of connecting factors in context of the purpose of the exemption, Justice Linden adopted Justice La Forest's explanation of the purpose (as stated in Mitchell) as being an effort to preserve the traditional way of life in Indian communities by protecting property held by Indians qua Indians on a reserve. He went on to summarize his understanding of the test as follows:

... It must be recalled that the connecting factors test is simply a way for courts to apply the situs principle in a principled way, by bringing some structure to the inquiry. It is an inquiry which has, as its basic question: having regard for the legislative purpose for which the section 87 tax exemption was enacted, where does it make the most sense to locate the situs of the personal property at issue? The test is no more magic than that.

[33]     Interestingly, he placed the emphasis in employment income cases on the nature of the employment itself:

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 inquiry into the location of employment income is equally dependent upon an examination of all the circumstances giving rise to that employment.

... 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.

[34]     Folster was distinguished on its facts by the Federal Court of Appeal decision in Desnomie v. The Queen.[14] The Court in Desnomie limits the significance of the nature of employment by requiring some connection to a particular reserve. The Court stated:

... 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 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.

[35]     Though later the Court's decision was refined somewhat by the following statement:

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.

[36]     The Federal Court of Appeal had another opportunity in the Shilling case to address this issue. It appears the Court is leaning towards a necessary link to a reserve as it states:

Whether intangible property is located on a reserve depends on an examination of factors connecting the property to a reserve.

[37]     However, this does not confirm that the link must beto the Appellant's own reserve, neither does it suggest that there cannot be a connection to more than one reserve. Indeed, the Court goes on to address this issue as follows:

[42] We would note that the head office of NLS was located on the Six Nations reserve. There is no evidence that NLS had any connection to the Rama Band of which Ms. Shilling was a member. We acknowledge that paragraph 87(1)(b) refers to personal property of an Indian that is situated on "a reserve" and not "the reserve" of the Indian in question. The Trial Judge inferred (at paragraph 73) from this that an Indian's property situated on any reserve is eligible for the tax exemption conferred under paragraph 87(1)(b). However, we are not convinced that this meaning is compelled by the language of paragraph 87(1)(b), although we recognize that the personal property of an Indian may attract the benefits of section 87, even when, like Ms. Shilling, its owner does not reside on a reserve.

[43] In Desnomie v. Canada (2000), 186 D.L.R. (4th) 718 (F.C.A.), at paragraph 21, it was doubted whether section 87 applies to personal property located on a reserve other than the taxpayer's own reserve. These doubts are reinforced by a passage in Leonard v. R. in Right of British Columbia (1984), 52 B.C.L.R. 389 (C.A.), at page 395, where Macfarlane J.A. seems to have taken the more restrictive view of the scope of section 87:

It is a reasonable interpretation of the section to say that a tax exemption on the personal property of an Indian will be confined to the place where the holder of such property is expected to have it, namely on the lands which an Indian occupies as an Indian, the reserve. [Emphasis added to the word "the".]

This passage is quoted with approval by La Forest J. in Mitchell, supra, at page 132.

[44] While this is an important issue, in light of the factual gaps in the record in the case before us that prevent the location of the employer from being considered a significant factor, it is not necessary to decide how the words "a reserve" should be interpreted.

[38]     This appears to leave the door open, just, for the determination of this issue.

[39]     Shilling also confirms the emphasis given by the Folster case to the nature of the work performed by the employee and the circumstances surrounding it, and adopts the language of Folster cited earlier in my decision at paragraph 33. The Shilling judgment concludes with commentary concerning the meaning of "commercial mainstream" and states "in the context of determining the location of intangible property for the purpose of section 87 "commercial mainstream" is to be contrasted with "integral to a life of a reserve"".

[40]     The most recent application in the Federal Court of Appeal is the decision of Monias. In the Monias decision, Justice Evans' preliminary comments are insightful as to how limiting the availability of section 87 is to employment income. He stated the following:[15]

... the more limited and specific purpose of section 87 is to protect reserve lands, and Indians' personal property on a reserve, from erosion, so that the bands are able to sustain themselves on the reserves as economic and social units. Hence, it is fully consistent with legislative policy to apply section 87 to income that is earned by Indians who reside on a reserve from work that is performed on a reserve.

... to stretch the benefit of paragraph 87(1)(b) beyond its limited rationale would be likely to produce incoherent and ad hoc decisions.

It is for this reason, in my view, that this Court appears to have upheld a section 87 claim in respect of employment income when its situs was in dispute in only two cases, Canada v. Folster, [1997] 3 F.C. 269 (C.A.); and Amos v. Canada, [2000] 3 C.N.L.R. 1 (F.C.A.). In Folster, supra, the only factor that did not connect the employment income to the reserve was the place where the employees worked, which was then, by happenstance, just off reserve. Similarly, in Amos, supra, while the employees did not work on the reserve, part of the employer's business was conducted on contiguous reserve land that it had leased from the band with the expectation that employment opportunities for band members would be created in the business. In both Folster, supra, and Amos, supra, the employees lived on the reserve adjacent to where they worked.

...

Further, in my opinion, the protection of reserve lands from erosion by tax lies closer to the core of section 87 than does the protection of items of individually owned personal property while they are situated on a reserve.

...

By enacting paragraph 87(1)(b) Parliament made an important exception to the principle that those similarly situated should be treated in the same way for tax purposes. However, the paragraph cannot be read as exempting from income tax Indians' employment income that was not clearly earned in circumstances that link its acquisition to a reserve as an economic base.

[41]     These principles set a restrictive rather than expansive tone for the application of the connecting factors test, though do not, I suggest, go so far as to propose that Indians who do not live on a reserve or Indians who do not physically perform all their work on the same reserve on which they live, need not apply. This would render the connecting factors test somewhat redundant. Justice Evans does introduce, however, the concept of a requisite linking of the employment income to a reserve as an economic base. The connecting factors test should be considered in that light.

[42]     Can employment income derived from the Government of Canada be linked to a reserve as an economic base? This is a very difficult and perhaps circuitous issue when consideration is given to who funds reserves. What is really meant by a reserve as an economic base? The Federal Court of Appeal found in Folster that an Indian working at a hospital, which treated status Indians whose care was funded by Health and Welfare Canada was exempt from taxation. Such employment income, derived as it was indirectly from the Government of Canada, must have been linked to the reserve as an economic base. I will further address this particular issue in reviewing the connecting factor of the nature of employment.

[43]     I am bound by these principles which limit the application of section 87 in employment income cases to income earned by Indians who reside on a reserve from employment that was earned in circumstances linking its acquisition to a reserve as an economic base. Mr. Akiwenzie resides on a reserve and works part of his time on reserves. Does the fact that not all of his time is spent working on the reserve on which he resides make him part of the commercial mainstream, and deem his work not to be integral to the life of a reserve? To answer this question, I must carefully weigh all connecting factors. Given the Federal Court of Appeal's direction, Mr. Akiwenzie can only succeed if I find strong evidence that the connecting factors point convincingly to his employment income being situated on a reserve as an economic base.

[44]     The connecting factors to review are:

          (i)       residence of Appellant;

          (ii)       location and nature of employer; and

(iii)      nature of employment and special circumstances surrounding employment.

Residence

[45]     Mr. Akiwenzie lived on a Mohawk reserve, Akwasasne, though he is Chippewa. His children attend school on the reserve. Though he spent more than a few nights staying over in Ottawa, I am satisfied his personal life was on the reserve. But more than that, his life was Indian. This is a man who was recognized in the Indian community across Canada, and would be welcomed on any reserve in the land, and was. Indeed, that is why he had the job he had at DIAND. The point is that, yes, he lived on a reserve, but his life was not bound ultimately to that one reserve. His life started on a different reserve and his job exposed him to hundreds of reserves, or perhaps it is better stated that he exposed his job to hundreds of reserves.

[46]     I attach considerable weight to his residence, and also acknowledge a more extensive connection to the reserve system generally than what is just afforded to someone who simply "lives on a reserve". So, what makes sense in reviewing this factor is that Mr. Akiwenzie's life is Indian. He and his family reside on a reserve. The personal property, the employment income, is, I would suggest, as with any family, consumed on the family on the reserve. This factor cannot be determinative, but it can and does provide a meaningful backdrop in weighing the other factors to determine whether Mr. Akiwenzie's life is in the commercial mainstream or more centered on reserves.

Location and nature of employer

[47]     The employer is the Government of Canada, specifically DIAND. In Monias, the Federal Court of Appeal had the following to say about this factor:[16]

The location of the employer has been regarded as a connecting factor under the analysis mandated by Williams, supra. However, in the absence of some evidence of the scope of the employer's activities on the reserve, or some benefit flowing to a reserve from the presence of the employer, it is not a factor to which much weight is apt to be assigned: Shilling, supra, at paragraph 35. ...

Do we have any evidence of the scope of the employer's activities on the reserve? We certainly have evidence that Mr. Akiwenzie, as just one employee of this department spent 15 to 20 per cent of his time physically on reserves. He also testified that the presence of Government Indian agents on reserves was pervasive and influential. Further, the Appellant submitted a lengthy document describing the Department's fiduciary obligations to Indians on reserves. This is not an employer engaged in commercial logging, or running a public hospital on or near a reserve. This is an employer with as broad a mandate as can be imagined in dealing with Indians on reserves.

[48]     As difficult as it is to attempt to establish a situs of a Government Department, I am not prepared to dismiss this factor as irrelevant. Indeed, I believe it is critical. This employer worked with reserves, worked on reserves and worked for reserves. The raison d'être of the Lands and Trusts Branch was the life of Indians on reserves. Its tentacles reached across the country from the Yukon to Newfoundland. It is inadequate and inaccurate to place its sole situs for the purpose of this connecting factor as an office building in Hull.

[49]     Mr. Ryan testified that the heart and soul of the Department was the area in which Mr. Akiwenzie worked - Lands and Trusts. Its business was reserves. Just by way of example, a document put out by Indian and Northern Affairs, Canada, describing the Joint Initiative in which Mr. Akiwenzie was involved listed the following as objectives for the Land Management aspect of the Initiative:

          (i)       to manage land related statutory duties under the Indian Act;

          (ii)       to transfer land management services to First Nations; and

          (iii)      to develop First Nations land management capacity.

This is indicative of the employer's intimate relationship with the reserve system. To suggest that reserves cannot at least in part be considered the situs of such a department, puts too narrow a definition on situs for this purpose. I weigh this factor, in combination with Mr. Akiwenzie's residence, as supportive of establishing the necessary nexus between employment income and reserves. These two factors are not sufficient, however, as reliance on them alone would entitle every Indian working at DIAND, who lives on a reserve, to qualify for the exemption. The exemption is not that broad and this would not be in accordance with the purpose behind the exemption, being to shield Indians from the efforts of non-Indians to dispossess them of property, that is, lands and chattels, held qua Indian; put another way, echoing the statements in the Folster's case, to preserve the traditional way of life in Indian communities by protecting property held by Indian qua Indian on a reserve.

Nature of employment and special circumstances

[50]     What will differentiate one from another at DIAND will be the nature of what the Indian's work entails. Judge Lamarre found in the Barry Ace case that the Indians employed with DIAND, who did not reside on reserves, earned their employment income in the commercial mainstream. It did not make sense that they would qualify.

[51]     Given that the type of property with which we are dealing, employment income, is not readily susceptible to pigeon-holing to a particular situs; given Mr. Akiwenzie lives on a reserve; given DIAND's situs includes reserves, it comes down to the nature and circumstances of Mr. Akiwenzie's employment which must tip the balance one way or another. This is in line with the suggestion in both the Shilling case and Folster case that this factor is indeed the most critical in the analysis. With what was Mr. Akiwenzie's employment intimately connected? As was indicated by the Federal Court of Appeal in Shilling, services provided by the employee create the entitlement; if employed on a reserve that suggests the income is earned as an Indian qua Indian; if employed off reserve that suggests the individual acquires employment income in the commercial mainstream. But here we have an individual who earned part of his income while physically on reserves, which the Crown is prepared to exempt, and earned part while working physically off reserves, albeit with an employer with the characteristics I have previously described. So what governs? Do I follow the Crown's approach and find Mr. Akiwenzie's work was partly in the commercial mainstream and partly integral to the life of a reserve? I am not satisfied that that does indeed make the most sense, when the nature and special circumstances of Mr. Akiwenzie's employment is fully reviewed.

[52]     Judge Sobier in Brant v. M.N.R.[17]stated:

... If an Indian chooses to work for an employer off a reserve, then income earned in the general commercial mainstream, in the day to day "affairs of life" off the reserve lands, is not personal property exempt from taxation pursuant to section 87 of the Indian Act.

That case likewise dealt with a Government employee. His reference to an Indian choosing to work for an employer off a reserve needs further scrutiny, however, in Mr. Akiwenzie's case. Mr. Akiwenzie chose to dedicate his life to improving the lot of Indians on reserves - restoring their pride. He chose to do this through an employer who had a fiduciary obligation to Indians. This was not, I would suggest, a choice to enter the commercial mainstream. It was a deliberate choice to pursue the avenue most likely to have a positive impact on Indians. To work from within, though never considering himself as truly being part of within. This was just not a commercial mainstream type of job.

[53]     Notwithstanding his written job description, which was simply created to improve his standing, Mr. Akiwenzie did not write reports. His job, during the years in issue, was to bring leaders of the Indian communities to the table. Mr. Ryan confirmed that only Mr. Akiwenzie could do this. As an Indian, he not only had all the right connections within that community, he had the communication skills necessary to pull it all together. And why did DIAND want these opportunities to access Indian leaders? Firstly, in connection with the environment on the Buffalo Point project; latterly in connection with the Government's need for TEK -Traditional Ecological Knowledge, an euphemism, I would suggest, for getting inside an Indian's head. As Mr. Akiwenzie said, it was not up to him to tell DIAND how Indians thought, but if he got the leaders together and they determined it would be in Indians' best interest to divulge that sort of information, then so be it. And he did get them together.

[54]     From working with TEK, Mr. Akiwenzie moved into the Joint Initiative. This was how the Government described that initiative:

          The time seemed right to try a new approach. The federal Government's response to the RCAP report - Gathering Strength - established a commitment for a renewed partnership between Canada and First Nations. First Nations, of course, have known for some time the status quo was not working. All these factors created a climate for change. Since the Land Trust service sector affects all First Nations, it seems a logical place to start.

Through this initiative, the AFN hopes to develop a process that promotes the inclusion of First Nations and policy and program development to ensure that program changes address the needs and priorities of First Nations.

[55]     The Joint Initiative was a great hope for Mr. Akiwenzie, regrettably, one which ultimately did not proceed. But to Mr. Akiwenzie, it was a chance for Indians to be heard on how Indians wished to have their future unfold. It was about the future of life on a reserve. Mr. Akiwenzie had a unique position - only he could do what he did. What he did was at the very heart of Indian life - the Canadian Government First Nations Partnership. He may indeed be the only Indian employee at DIAND of whom that can be said.

[56]     There are special circumstances surrounding this employment as it was unique in putting DIAND in such close contact to the decision makers in the Indian communities, with a common goal of addressing change.

[57]     What makes the most sense in a review of this connecting factor is that Mr. Akiwenzie has established a strong connection between his employment income and reserves. His employment was anything but caught up in a commercial mainstream: his duties were integral to the future of reserves. Everything he did he did as an Indian qua Indian, be it fighting for Indian rights, raising a family on the reserve, restoring pride in Indians on reserves or working through the only agency in Canada for which he might truly be in a position to integrally affect the lives of Indians on reserves. His office could have just as readily been on a reserve as in Hull: there was no "commercial mainstream" as such that required duties to be performed from an office in Hull.

[58]     Returning now to the principles gleaned from the Monias case, I must address whether this connecting factor does establish a necessary link with the reserve as an economic base. This is possible if I can justify an interpretation of section 87 of the Indian Act, and of the recent Federal Court of Appeal cases, as encompassing a nexus between employment income and the reserve system generally, for although Mr. Akiwenzie resided on a reserve, his employment income is only connected to that reserve by his personal expenditures. His true connection as far as determining the situs of his employment income is to each and every reserve in Canada.

[59]     From a policy perspective, I believe it would not be contrary to the purpose of section 87, as defined by Justice La Forest, to allow Mr. Akiwenzie, given his exceptional circumstances, to receive this exemption. This does require a reading in section 87 of the use of the term "properties situated on a reserve" to mean situated on more than one reserve. I can easily imagine a situation where an Indian physically works on three or four reserves and perhaps resides on a fifth. Is his exemption precluded because his connection is to more than one reserve? I think not. He has no less of a connection with a reserve simply because he had contact with 480 reserves. The connection must be established with each and every reserve, but need not be limited to just one. Certainly, Mr. Akiwenzie might have a slightly stronger connection to the reserve on which he resides, as presumably more of his personal property, his employment income, would be spent there, but that does not deny his connection to all the other reserves. For only as a whole did they constitute the economic base required by the Federal Court of Appeal decision in Monias. Mr. Akiwenzie is funded by the Government of Canada to gain access to the Indian community to obtain their knowledge, their input and ultimately their consensus on what the reserve system is now and should be in the future. In this respect, the reserve system generally does indeed serve as an economic base for Mr. Akiwenzie's employment income. It is not so different from the hospital employee paid from government funds directed towards the care of Indians.

[60]     While Mr. Akiwenzie's residence and the residence of the Lands and Trusts Department of the Indian Northern Affairs are relevant, it is the nature and special circumstances of Mr. Akiwenzie's employment that sway me to find that he derived his employment income as an Indian qua Indian. It is personal property situated on a reserve. He is, therefore, entitled to the protection of that employment income in the very hands of the entity providing it - the Government of Canada.

[61]     For the foregoing reasons I allow the appeal and refer the matter back to the Minister for reconsideration and reassessment on the basis that Mr. Akiwenzie's employment income is personal property situate on a reserve and exempt from taxation. Mr. Akiwenzie is entitled to costs of $200.

Signed at Ottawa, Ontario, this 7th day of March, 2003.

"Campbell J. Miller"

J.T.C.C.

CITATION:

2003TCC68

COURT FILE NO.:

2002-76(IT)I

STYLE OF CAUSE:

Alexander Akiwenzie and Her Majesty the Queen

PLACE OF HEARING

Ottawa, Ontario

DATE OF HEARING

December 17, 2002

REASONS FOR JUDGMENT BY:

The Honourable Judge Campbell J. Miller

DATE OF JUDGMENT

February 25, 2003

APPEARANCES:

Counsel for the Appellant:

Stephen G. Reynolds

Counsel for the Respondent:

Justine Malone

COUNSEL OF RECORD:

For the Appellant:

Name:

Stephen G. Reynolds

Firm:

Reynolds, Dolgin

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada