Bastien Estate v. Canada

Bastien Estate v. Canada
Collection
Supreme Court Judgments
Date
2011-07-22
Neutral citation
2011 SCC 38
Report
[2011] 2 SCR 710
Case number
33196
Judges
McLachlin, Beverley; Binnie, William Ian Corneil; Deschamps, Marie; Fish, Morris J.; Charron, Louise; Rothstein, Marshall; Cromwell, Thomas Albert
On appeal from
Federal Court of Appeal
Subjects
Aboriginal law
Taxation
Notes
SCC Case Information: 33196
Decision Content
SUPREME COURT OF CANADA
Citation: Bastien Estate v. Canada, 2011 SCC 38
Date: 20110722
Docket: 33196
Between:
Estate of Rolland Bastien
Appellant
and
Her Majesty The Queen
Respondent
- and -
Huron-Wendat Nation, Assembly of Manitoba Chiefs,
Grand Council of the Crees (Eeyou Istchee)/Cree
Regional Authority, Assembly of First Nations, Chiefs
of Ontario and Union of Nova Scotia Indians
Interveners
Official English Translation: Reasons of Deschamps J.
Coram: McLachlin C.J. and Binnie, Deschamps, Fish, Charron, Rothstein and Cromwell JJ.
Reasons for Judgment:
(paras. 1 to 65)
Concurring Reasons:
(paras. 66 to 111)
Cromwell J. (McLachlin C.J. and Binnie, Fish and Charron JJ. concurring)
Deschamps J. (Rothstein J. concurring)
Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports.
bastien estate v. canada
Estate of Rolland Bastien Appellant
v.
Her Majesty The Queen Respondent
and
Huron‑Wendat Nation, Assembly of Manitoba Chiefs,
Grand Council of the Crees (Eeyou Istchee)/Cree
Regional Authority, Assembly of First Nations, Chiefs
of Ontario and Union of Nova Scotia Indians Interveners
Indexed as: Bastien Estate v. Canada
2011 SCC 38
File No.: 33196.
2010: May 20; 2011: July 22.
Present: McLachlin C.J. and Binnie, Deschamps, Fish, Charron, Rothstein and Cromwell JJ.
on appeal from the federal court of appeal
Aboriginal law — Taxation — Exemptions — Interest income — Status Indian living on reserve investing income in term deposits with caisse populaire on same reserve — Interest income earned on term deposits paid and deposited in savings account — Whether interest income exempt from income taxation as personal property “situated on a reserve” — Connecting factors approach to determining location of intangible personal property — Whether caisse’s economic activity in “commercial mainstream” off reserve is potentially relevant factor — Indian Act, R.S.C. 1985, c. I‑5, s. 87(1) (b).
Taxation — Income tax — Exemptions — Income from property — Interest income earned on term deposits deposited in status Indian’s savings account on reserve — Whether interest income exempt from tax as “personal property of an Indian situated on a reserve” — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), s. 3 , 9 — Indian Act, R.S.C. 1985, c. I‑5, s. 87(1) (b).
B was a status Indian who belonged to the Huron‑Wendat Nation. He was born and died on the Wendake Reserve near Quebec City. From 1970 until 1997, B operated a moccasin manufacturing business on that reserve. He invested some of the income from the operation and sale of his business in term deposits with the Caisse populaire Desjardins du Village Huron. The Caisse has since its founding had its head office, its only place of business and its sole fixed asset on the Wendake Reserve. In 2001, the certificates of deposit paid interest that was deposited in B’s transaction savings account at the Caisse. B considered this income to be property exempt from taxation under the Indian Act . However, in 2003, the Minister of National Revenue made an assessment in which he added the investment income to B’s income for the 2001 taxation year. The assessment was confirmed and B’s estate appealed unsuccessfully to the Tax Court of Canada and the Federal Court of Appeal. Both courts held that the Caisse generated its revenues in the “economic mainstream”, not on the reserve, and therefore that the interest it paid to B was not situated on the reserve.
Held: The appeal should be allowed.
Per McLachlin C.J. and Binnie, Fish, Charron and Cromwell JJ.: The phrase “on a reserve” in s. 87 of the Indian Act should be interpreted having regard to the substance and the plain and ordinary meaning of the language used. Where, because of its nature or the type of exemption in question, the location of property is not objectively easy to determine, the connecting factors approach set out in Williams v. Canada, [1992] 1 S.C.R. 877, must be applied: First, the court identifies potentially relevant factors connecting the intangible personal property to a location. Second, the court analyses these factors purposively in order to assess what weight should be given to them. This analysis considers the purpose of the exemption under the Indian Act , the type of property in question and the nature of the taxation of that property. The Williams approach applies here, since the location of a transaction — the payment of interest pursuant to a contract — for the purposes of taxation has to be determined.
The purpose of the tax exemption is to preserve Indian property on a reserve. While the relationship between the property and life on the reserve may in some cases be a factor tending to strengthen or weaken the connection between the property and the reserve, the availability of the exemption does not depend on whether the property is integral to the life of the reserve or to the preservation of the traditional Indian way of life. The property in issue here is investment income derived from term deposits, which are a basic investment vehicle evidenced by a certificate of deposit. The investor, as the holder of a certificate of deposit, is not a participant in the equity markets but rather is simply entitled to be paid the agreed‑upon rate of interest over the agreed‑upon period of time in addition to having the capital returned at the end of that period. This investment income is personal property for the purposes of s. 87 of the Indian Act . The contract provides for a right to a sum of money payable under certain conditions. But for the tax exemption, B’s interest income earned from term deposits would be income from property to be added to his yearly income pursuant to ss. 3 , 9 and 12(1) (c) of the Income Tax Act .
The relevant connecting factors identified in Williams include: the residence of the debtor, the residence of the person receiving the benefits, the place the benefits are paid, and the location of the employment income which gave rise to the qualification for benefits. General legal rules about the location of property are relevant for the purposes of the Indian Act . Thus, provisions and jurisprudence relating to the location of income may prove helpful in deciding whether income is located on a reserve. While these rules cannot be imported from one context into another without due consideration, they ought to be considered and given appropriate weight in light of the purpose of the exemption, the type of property and the nature of the taxation in issue.
Here, the connecting factors identified in Williams are potentially relevant. When they are considered and weighed in light of the purpose of the exemption, the type of property and the nature of the taxation of that property, all point to the reserve as the location of the interest income. The location of the debtor, the Caisse, and the place where payment must be made, both under the contract between B and the Caisse and under art. 1566 of the Civil Code of Québec, are clearly on the reserve. The income arises from a contractual obligation which was entered into on the reserve. These connecting factors should weigh heavily in attributing a location to the interest income. Other potentially relevant connecting factors reinforce rather than detract from the conclusion that the interest income is property situated on the reserve. The residence of the payee, B, was on the reserve. As for the source of the capital which was invested to produce the interest income, it too was earned on the reserve.
The fact that the Caisse produced its revenue in the “commercial mainstream” off the reserve is legally irrelevant to the nature of the income it was obliged to pay to B. This is true as to both form and substance. While that factor may have weight with respect to other types of investments, it has been given significantly too much weight by the lower courts with respect to the term deposits in issue here. B made a simple loan to the Caisse. The Caisse’s income‑producing actions and contracts after B invested in term deposits cannot be deemed his own and do not diminish the many and clear connections between his interest income and the reserve. The question is the location of B’s interest income and not where the financial institution earns the profits to pay its contractual obligation to B. The exemption from taxation protects an Indian’s personal property situated on a reserve. Therefore, where the investment vehicle is, as in this case, a contractual debt obligation, the focus should be on the investment activity of the Indian investor and not on that of the debtor financial institution. When one focuses on the connecting factors relevant to the location of B’s interest income arising from his contractual relationship with the Caisse, it is apparent that the other commercial activities of the Caisse should have been given no weight in this case. B’s investment was in the nature of a debt owed to him by the Caisse and did not make him a participant in those wider commercial markets in which the Caisse itself was active. B’s investment income should therefore benefit from the s. 87 Indian Act exemption.
Per Deschamps and Rothstein JJ.: The identification of connecting factors for the purposes of the Indian Act must be focused on concrete and discernible links between the property and the reserve, regardless of whether the property is tangible or intangible.
In this case, the personal property whose location must be determined is the personal right whose legal existence is provided for in the investment contract, that is, a right to be paid interest, subject to certain conditions. For the purpose of determining the location of this intangible property, the debtor’s place of residence is a factor that can have some weight, but this factor cannot be paramount, since what must be done is not, as might be the case in a private international law context, to determine the place where judicial proceedings should be introduced. The place of payment of the interest is not really relevant for the purpose of determining the place where the property is held, since the taxing provision that governs the tax treatment of interest income — s. 12(4) of the Income Tax Act — does not require that interest actually be paid to be included in the taxpayer’s income. The fact that the creditor resides on a reserve is relevant. It is to the advantage of Indians living on a reserve to foster the economic development of the reserve, and income spent or invested on a reserve can only contribute to that development. Nevertheless, residence must not be considered a prerequisite for the exemption, since it ceased to be a statutory requirement more than a century ago. The place where the contract was signed does not on its own constitute a sufficiently objective legal basis for determining the location of a right to be paid interest, since it would be open to manipulation and could be artificial. To be compatible with the purpose of the exemption, the choice to sign the contract on a reserve must not have been based simply on obtaining a personal benefit for an Indian whose usual place of business was off the reserve. Lastly, in the case of a right to be paid interest, it is necessary to look beyond the investment contract and consider the source of the invested capital. Where the capital resulted from several different activities, the place where the greatest proportion of the activities were carried out should serve as a factor by analogy with the paramount location concept used in relation to tangible property.
In this case, the debtor’s place of residence, that of the creditor, the place where the contract was signed and the activity that generated the capital that made it possible to enter into the investment contract all favour granting the exemption to B’s estate.
There is agreement with the majority that it is not necessary to consider whether the property or the activity that generated it is connected with the traditional Aboriginal way of life. It is also agreed that the activity engaged in by a financial institution to fulfil its monetary obligations in the context of investment contracts providing for the payment of interest is not a valid factor for determining whether personal property held by an Indian is situated on a reserve. However, there is disagreement with the weight attached in the analysis to formal connections that, in certain circumstances, have a tenuous relationship with the reserve. The majority’s approach disregards the provision that governs the tax treatment of interest income and is inconsistent with the historical purpose of the exemption.
Cases Cited
By Cromwell J.
Applied: Williams v. Canada, [1992] 1 S.C.R. 877; disapproved: Recalma v. Canada (1998), 158 D.L.R. (4th) 59; considered: Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85; referred to: Nowegijick v. The Queen, [1983] 1 S.C.R. 29; Union of New Brunswick Indians v. New Brunswick (Minister of Finance), [1998] 1 S.C.R. 1161; R. v. Lewis, [1996] 1 S.C.R. 921; Lewin v. Canada, 2002 FCA 461, 2003 D.T.C. 5476, aff’g 2001 D.T.C. 479; Sero v. Canada, 2004 FCA 6, [2004] 2 F.C.R. 613; McDiarmid Lumber Ltd. v. God’s Lake First Nation, 2006 SCC 58, [2006] 2 S.C.R. 846; University of British Columbia v. Berg, [1993] 2 S.C.R. 353; Canada v. Folster, [1997] 3 F.C. 269; Will‑Kare Paving & Contracting Ltd. v. Canada, 2000 SCC 36, [2000] 1 S.C.R. 915; Southwind v. Canada (1998), 156 D.L.R. (4th) 87.
By Deschamps J.
Referred to: Dubé v. Canada, 2011 SCC 39, rev’g 2009 FCA 109, 393 N.R. 143, and 2007 TCC 393, 2008 D.T.C. 4022; Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85; Williams v. Canada, [1992] 1 S.C.R. 877; Union of New Brunswick Indians v. New Brunswick (Minister of Finance), [1998] 1 S.C.R. 1161; Nowegijick v. The Queen, [1983] 1 S.C.R. 29; The Queen v. National Indian Brotherhood, [1979] 1 F.C. 103; McDiarmid Lumber Ltd. v. God’s Lake First Nation, 2006 SCC 58, [2006] 2 S.C.R. 846; Robinson v. The Queen, 2010 TCC 649, [2011] 2 C.T.C. 2286; Horn v. Canada, 2007 FC 1052, [2008] 1 C.T.C. 140, aff’d 2008 FCA 352, 302 D.L.R. (4th) 472; Shilling v. M.N.R., 2001 FCA 178, [2001] 4 F.C. 364; Canada v. Monias, 2001 FCA 239, [2002] 1 F.C. 51; Southwind v. Canada (1998), 156 D.L.R. (4th) 87; Large v. The Queen, 2006 TCC 509, 2006 D.T.C. 3558.
Statutes and Regulations Cited
An Act for the protection of the Indians in Upper Canada from imposition, and the property occupied or enjoyed by them from trespass and injury, S.C. 1850, c. 74, s. 4.
Civil Code of Québec, S.Q. 1991, c. 64, arts. 1440, 1566.
Deposit Insurance Act, R.S.Q., c. A‑26.
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), ss. 3 , 9 , 12(1) (c), (4) , 56 , 248(1) “property”.
Indian Act, R.S.C. 1985, c. I‑5, ss. 87 , 89 , 90 .
Indian Act, S.C. 1951, c. 29, s. 86.
Indian Act, 1876, S.C. 1876, c. 18, ss. 64, 65.
Regulation respecting the application of the Deposit Insurance Act, (1993) 125 G.O.Q. II, 3333, r. 1, s. 1.
Royal Proclamation (1763), R.S.C. 1985, App. II, No. 1.
Treaty No 8 (1899).
Trust and Loan Companies Act, S.C. 1991, c. 45 .
Authors Cited
Bartlett, Richard H. “The Indian Act of Canada” (1977‑1978), 27 Buff. L. Rev. 581.
Biberdorf, Donald K. “Aboriginal Income and the ‘Economic Mainstream’”, Canadian Tax Foundation, Report of Proceedings of the Forty‑Ninth Tax Conference, 25:1. Toronto: The Foundation, 1998.
Canada. Revenue Canada, Taxation. Interpretation Bulletin No. IT‑62, “Paragraph 81(1)(a) (also subparagraph 110(1)(a)(iv) and paragraph 149(1)(c))”, August 18, 1972.
Dockstator, Mark. “The Nowegijick Case: Implications for Indian Tax Planning Strategies”, [1985] 4 C.N.L.R. 1.
L’Heureux, Nicole, Édith Fortin et Marc Lacoursière. Droit Bancaire, 4e éd. Cowansville, Qué.: Yvon Blais, 2004.
Lord, Guy, et autres. Les principes de l’imposition au Canada, 13e éd. Montréal: Wilson & Lafleur, 2002.
MacIntosh, Constance. “From Judging Culture to Taxing ‘Indians’: Tracing the Legal Discourse of the ‘Indian Mode of Life’” (2009), 47 Osgoode Hall L.J. 399.
Maclagan, Bill. “Section 87 of the Indian Act : Recent Developments in the Taxation of Investment Income” (2000), 48 Can. Tax J. 1503.
Marshall, Murray. “Business and Investment Income under Section 87 of the Indian Act : Recalma v. Canada” (1998), 77 Can. Bar Rev. 528.
McDonnell, Thomas E. “Taxation of an Indian’s Investment Income” (2001), 49 Can. Tax J. 954.
O’Brien, Martha. “Income Tax, Investment Income, and the Indian Act : Getting Back on Track” (2002), 50 Can. Tax J. 1570.
Slattery, Brian. “Understanding the Aboriginal Rights” (1987), 66 Can. Bar Rev. 727.
Sullivan, Ruth. Sullivan on the Construction of Statutes, 5th ed. Markham, Ont.: LexisNexis, 2008.
APPEAL from a judgment of the Federal Court of Appeal (Nadon, Blais and Pelletier JJ.A.), 2009 FCA 108, 400 N.R. 349, 2010 D.T.C. 6740, 2010 D.T.C. 5054, [2009] F.C.J. No. 434 (QL), 2009 CarswellNat 5362, affirming a decision of Angers J., 2007 TCC 625, 2008 D.T.C. 4064, [2008] 5 C.T.C. 2533, [2007] T.C.J. No. 541 (QL), 2007 CarswellNat 5406. Appeal allowed.
Michel Beaupré and Michel Jolin, for the appellant.
Pierre Cossette and Bernard Letarte, for the respondent.
Peter W. Hutchins and Lysane Cree, for the intervener the Huron‑Wendat Nation.
Jeff D. Pniowsky and Sacha R. Paul, for the intervener the Assembly of Manitoba Chiefs.
John Hurley and François Dandonneau, for the intervener the Grand Council of the Crees (Eeyou Istchee)/Cree Regional Authority.
Maxime Faille and Graham Ragan, for the intervener the Assembly of First Nations.
David C. Nahwegahbow and James Hopkins, for the intervener Chiefs of Ontario.
Brian A. Crane, Q.C., and Guy Régimbald, for the intervener the Union of Nova Scotia Indians.
The judgment of McLachlin C.J. and Binnie, Fish, Charron and Cromwell JJ. was delivered by
Cromwell J. —
I. Overview
[1] Under the Indian Act, R.S.C. 1985, c. I-5 , the late Rolland Bastien was exempt from taxation with respect to personal property situated on a reserve. He earned interest income on term deposits with an on-reserve caisse populaire, a Quebec savings and credit union. The income is admittedly personal property for the purposes of the tax exemption. At issue is whether this personal property C the interest income C was situated on a reserve so that the exemption from tax applies to it. The Tax Court of Canada and the Federal Court of Appeal held that the exemption did not apply. They reasoned that the caisse populaire generated its revenues in the “economic mainstream”, not on the reserve, and therefore that the interest it paid to Mr. Bastien was not situated on the reserve. Mr. Bastien’s estate challenges that conclusion.
[2] In my respectful view, the interest income paid to Mr. Bastien was situated on a reserve and was therefore exempt from taxation. One determines the location of intangible personal property such as the interest income in issue in this case by conducting a two-step analysis. First, one identifies potentially relevant factors tending to connect the property to a location and then determines what weight they should be given in identifying the location of the property in light of three considerations: the purpose of the exemption from taxation, the type of property and the nature of the taxation of that property. In this case, virtually every potentially relevant factor connects the interest income to the reserve: Mr. Bastien obtained the certificates of deposit on the reserve and the interest income was payable there; the caisse populaire which issued the certificates of deposit has its only place of business on the reserve. The principal that gave rise to the interest income was earned on the reserve and Mr. Bastien lived there. I would allow the appeal.
II. Facts, Proceedings and Issue 1. Facts [3] Under the Indian Act , the personal property of an Indian situated on a reserve is exempt from taxation. This includes exemption from income taxation: Nowegijick v. The Queen, [1983] 1 S.C.R. 29, at pp. 38–39. The relevant provisions are ss. 87(1) (b) and (2) of the Indian Act , as they read at the time the interest income was paid to Mr. Bastien:
87. (1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely,
. . .
(b) the personal property of an Indian or a band situated on a reserve.
(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.
[4] This exemption from taxation under s. 87 with respect to on-reserve property is part of a larger scheme of protections. Under s. 89, real and personal property of an Indian (or band) situated on a reserve is not subject to attachment or seizure. Thus, the location of the property on the reserve is relevant both to whether it is taxable and to whether it is exigible. The words “situated on a reserve” should be interpreted consistently throughout the Act to mean “within the boundaries of the reserve”: Union of New Brunswick Indians v. New Brunswick (Minister of Finance), [1998] 1 S.C.R. 1161, at para. 13; R. v. Lewis, [1996] 1 S.C.R. 921, at pp. 955–58. Under s. 90, certain property is deemed to be situated on a reserve even though it may in fact be physically located elsewhere. The deeming provision applies, speaking generally, to personal property purchased for the use and benefit of Indians (with Indian funds or funds appropriated by Parliament) and to personal property given to Indians under a treaty or agreement with the Crown. There are no other provisions of the Indian Act specifying how the location of property is to be determined for the purposes of this protective scheme.
[5] The late Rolland Bastien was a status Indian and belonged to the Huron-Wendat Nation. He was born and died on the Wendake Reserve near Quebec City. His wife and children who succeed him are also Huron and live on the reserve. From 1970 until 1997 when he sold the business to his children, Mr. Bastien operated a moccasin manufacturing business on the Wendake Reserve: Les Industries Bastien enr. He invested some of the income from the operation and sale of his business in term deposits with two caisses populaires situated on Indian reserves, the Caisse populaire Desjardins du Village Huron (the “Caisse”) situated on the Wendake Reserve and the Caisse populaire Desjardins de Pointe-Bleue situated on the Mashteuiatsh Reserve. Only the income from the investments with the Caisse on the Wendake Reserve is in issue on this appeal. The Caisse has since its founding in 1965 had its head office, its only place of business and its sole fixed asset on the reserve (partial agreed statement of facts, A.R., vol. II, at p. 200).
[6] In 2001, Mr. Bastien held certificates of deposit at the Caisse and these investments paid interest that was deposited in a transaction savings account at the Caisse. Mr. Bastien considered this income to be property exempt from taxation. However, in 2003, the Minister of National Revenue made an assessment in which he added the investment income to Mr. Bastien’s income for the 2001 taxation year. The Minister confirmed the assessment and Mr. Bastien’s estate appealed unsuccessfully to the Tax Court and the Federal Court of Appeal.
2. Proceedings [7] In the Tax Court (2007 TCC 625, 2008 D.T.C. 4064), Angers J. applied the Federal Court of Appeal’s decision in Recalma v. Canada (1998), 158 D.L.R. (4th) 59. He was of the view that the location of investment income should be analysed by having regard to four factors: its connection to the reserve; whether it benefited the traditional Native way of life; the risk that taxation would erode Native property; and the extent to which the investment income was derived from economic mainstream activity. Angers J. thought that this fourth factor C whether the income was derived from the economic mainstream C was the most important. He found that the Caisse earned its income from activities in the economic mainstream which were not closely connected to the reserve. Consequently, in his view, the investment income was not exempt from taxation.
[8] The Federal Court of Appeal upheld this conclusion (2009 FCA 108, 400 N.R. 349). Nadon J.A. thought that this case was governed by the court’s previous decisions in Recalma, Lewin v. Canada, 2002 FCA 461, 2003 D.T.C. 5476, and Sero v. Canada, 2004 FCA 6, [2004] 2 F.C.R. 613. Nadon J.A. highlighted that the most important consideration was whether the investment income C that is, the profit generated from the capital invested in a financial institution C was produced on or off the territory of the reserve. In other words, Nadon J.A. found that if all or part of the funds were invested in the general mainstream of the economy, the taxation exemption could not apply. In his view, that was the case and the appeal should be dismissed.
[9] In concurring reasons, Pelletier J.A. (Blais J.A. concurring) added some comments about the nature of the caisses populaires’ business activities. The caisses populaires, he thought, now fully participate in the capital market, at least to the extent that their cash requirements permit or their surplus funds demand. The nature of the capital market itself should be given the most weight in order to determine the location of investment income. That market is not limited to a reserve, a province or even a country.
3. Issue [10] There is only one question before the Court: Was Mr. Bastien’s interest income earned on the term deposits with the Caisse populaire Desjardins du Village Huron exempt from income taxation because it was personal property situated on a reserve?
III. Analysis [11] The appellant submits that the analyses in the Tax Court and the Federal Court of Appeal were faulty in two related respects. First, they failed to give appropriate weight to the contractual nature of the investment vehicle in determining whether or not it was situated on a reserve. Mr. Bastien contracted with the Caisse on the reserve for a particular rate of return on his investment to be paid to him on the reserve; how the Caisse produced income by dealings with others, the appellant contends, was not relevant to determining the location of Mr. Bastien’s investment income. The appellant points to art. 1440 of the Civil Code of Québec, S.Q. 1991, c. 64, which provides that a contract has effect only between the contracting parties and does not generally affect third persons. Second, the appellant submits that the courts below erred by giving determinative weight to the fact that the income was derived from the commercial mainstream; the appellant says that all the relevant factors ought to have been considered and they all favour the reserve as the location of the interest income.
[12] The respondent substantially supports the reasoning of the Federal Court of Appeal. To be exempt from taxation, the interest income must be closely connected to a reserve, that is to say, that the issuer’s income-generating activities must be exclusively situated on a reserve. In this case, as the Caisse’s income-generating activities were in the commercial mainstream, Mr. Bastien’s interest income paid by the Caisse cannot be exempt from taxation. Additionally, the respondent submits that the privity of contract rule should not limit the courts in making factual findings about the location of the issuer’s income-generating activities. Nor should the rule imply that the situs of the contract is the situs of the investment income.
[13] I agree substantially with the appellant. To explain why, I will discuss first, the statutory language of the exemption; second, the analysis that is required to determine the location of property for the purposes of the exemption; and finally, how it applies in this case.
1. The Statutory Language
[14] The exemption from taxation (s. 87(1) (b)) applies to “the personal property of an Indian or a band situated on a reserve”. Courts should interpret the phrase “on a reserve” having due regard to the “substance and the plain and ordinary meaning of the language used rather than to forensic dialectics”: Nowegijick, at p. 41; see also Lewis, at p. 958; Union of New Brunswick Indians, at paras. 13–14; McDiarmid Lumber Ltd. v. God’s Lake First Nation, 2006 SCC 58, [2006] 2 S.C.R. 846, at para. 19. As noted earlier, there is an exemption from both taxation and from seizure (s. 89) with respect to property “situated on a reserve” and that phrase should be given the same construction wherever it is used throughout the Indian Act : Union of New Brunswick Indians, at para. 13.
[15] The phrase “on a reserve” refers throughout the Act to the property being within the boundaries of the reserve. However, different legal tests are used to determine whether various types of property are so situated for the particular purposes. For example, an issue in the God’s Lake case was whether a bank account in an off-reserve bank was exempt from seizure. The Court looked for guidance to the traditional common law rules and the terms of the Trust and Loan Companies Act, S.C. 1991, c. 45 . These made it clear that the account was located at the branch which was off the reserve: para. 13. However, where the question concerns the location of non-physical property generated by a transaction, such as the payment of benefits, for taxation purposes, a more fact-specific analysis is used which weighs factors potentially relevant to identifying the location of the transaction. An important point, however, is that regardless of the type of property or the difficulty of ascribing to it a location, the objective must always be to implement the statutory language, and that requires keeping the focus on whether the property is situated on a reserve.
2. Determining the Location of Income [16] Where, because of its nature or the type of exemption in question, the location of property is not objectively easy to determine, courts must apply the connecting factors approach set out in Williams v. Canada, [1992] 1 S.C.R. 877, in order to attribute a location to the property. While this search for location may seem at times to be more the stuff of metaphysics than of law, the attribution of location is what the Indian Act provisions require. The difficulty of doing so means that it is not generally possible to apply a simple, standard test to determine the location of intangible property. Gonthier J. recognized this in Williams, at p. 891, where he was considering whether unemployment insurance benefits were exempt from taxation under s. 87 :
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.
[17] As the location of such property will always be notional, there is a risk that attributing a location to it will be arbitrary. An alternative would be to apply consistently a single strict rule, but that solution is not without its limitations. Gonthier J. expressed caution against a single criteria test. Indeed, where one or two factors have a controlling force, there could be manipulation or abuse, and there is cause to worry that such an analysis would miss the purpose of the Indian Act exemption: Williams, at p. 892.
[18] To address this challenge, Gonthier J. in Williams set out a two-step test. At the first step, the court identifies potentially relevant factors connecting the intangible personal property to a location. “A connecting factor is only relevant”, wrote Gonthier J., “in so much as it identifies the location of the property in question for the purposes of the Indian Act ” (p. 892). Thus, even in this somewhat metaphysical sphere, the focus is clearly on ascribing a physical location to the property in question. Connecting factors mentioned in Williams include things such as the residence of the payor and the payee, the place of payment and where the employment giving rise to qualification for the benefit was performed: Williams, at p. 893. As Gonthier J. noted, potentially relevant connecting factors have different relevance depending on the categories of property and the types of taxation in issue. So, for example, “connecting factors may have different relevance with regard to unemployment insurance benefits than in respect of employment income, or pension benefits” (p. 892). To take this into account, as well as to ensure that the analysis serves to identify the location of the property for the purposes of the Indian Act , at the second step, the court analyses these factors purposively in order to assess what weight should be given to them. This analysis considers the purpose of the exemption under the Indian Act ; the type of property in question; and the nature of the taxation of that property (p. 892).
[19] Williams thus establishes a clearly structured analysis, but one that turns on careful consideration of the particular circumstances of each case assessed against the purpose of the exemption. As Gonthier J. noted at p. 893, the Williams approach “preserves the flexibility of the case by case approach, but within a framework which requires the court to assess the weight which is to be placed on the various connecting factors”. The Williams approach applies here because we are dealing with the location of a transaction C the payment of interest pursuant to a contract C for the purposes of taxation.
[20] In this case and others, the Tax Court and the Federal Court of Appeal have developed and applied jurisprudence which adapts the Williams analysis to the taxation of interest and other investment income. As this is the first case in this Court since Williams to address this issue, it is timely to restate and consolidate the analysis that should be undertaken in applying the s. 87 exemption to interest income. I will therefore review the analysis required by Williams in more detail, focusing in turn on the purpose of the exemption, the type of property, the nature of the taxation of that property and the potentially relevant connecting factors.
(i) The Purpose of the Exemption
[21] In Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85, La Forest J. discussed the purpose of both the tax exemption and the immunity from seizure in the Indian Act . With respect to the exemption from taxation, he observed that it serves to “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” (p. 130). He summed up his discussion of the purpose of the provisions by noting that since the Royal Proclamation of 1763, R.S.C. 1985, App. II, No. 1, “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”. He added an important qualification: the purpose of the exemptions is to preserve property reserved for their use, “not to remedy the economically disadvantaged position of Indians by ensuring that [they could] acquire, hold and deal with property in the commercial mainstream on different terms than their fellow citizens”: p. 131. As La Forest J. put it:
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. [Emphasis added; p. 133.]
[22] However, La Forest J. was careful to emphasize that even with respect to purely commercial arrangements, the protections from taxation and seizure always apply to property situated on a reserve. As he put it, at p. 139:
… 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. It must be remembered that the protections of ss. 87 and 89 will always apply to property situated on a reserve. [Emphasis added.]
[23] The Court returned to the purpose of the exemptions in Williams. Gonthier J. confirmed that the purpose of the exemptions “was to preserve the entitlements of Indians to their reserve lands and to ensure that the use of their property on their reserve lands was not eroded by the ability of governments to tax, or creditors to seize” (p. 885). Echoing the limitation described by La Forest J. in Mitchell, Gonthier J. added that “the purpose of the sections was not to confer a general economic benefit upon the Indians” (at p. 885) and that “[w]hether the Indian wishes to remain within the protected reserve system or integrate more fully into the larger commercial world is a choice left to the Indian” (p. 887). In light of this, Gonthier J. held that the purpose of the requirement in s. 87 that the property be “situated on a reserve” is to “determine whether the Indian holds the property in question as part of the entitlement of an Indian qua Indian on the reserve” (p. 887). In both Union of New Brunswick Indians and God’s Lake, the Court confirmed that the purpose of the exemptions was as set out in Mitchell and Williams.
[24] It will be useful to make two additional points.
[25] The first is that a purposive approach to the application of the exemption provisions must be rooted in the statutory text and does not give the court “license to ignore the words of the Act ... or otherwise [circumvent] the intention of the legislature” which that text expresses: University of British Columbia v. Berg, [1993] 2 S.C.R. 353, at p. 371. As Professor Sullivan has wisely observed, even when the broad purposes of legislation are clear, “it does not follow that the unqualified pursuit of those purposes will give effect to the legislature’s intention”: R. Sullivan, Sullivan on the Construction of Statutes (5th ed. 2008), at p. 297; see also Nowegijick, at p. 34. A purposive analysis must inform the court’s approach to weighing the connecting factors. But it must be acknowledged that there may not always be a complete correspondence between the meaning of the text and its broad, underlying purpose.
[26] The second and related point concerns the expression “Indian qua Indian”. In both Mitchell and Williams, the Court referred to the purpose of the exemption as protecting property which Indians hold qua Indians: Mitchell, at p. 131; Williams, at p. 887. In some of the subsequent jurisprudence, this has been taken as a basis for importing into the s. 87 analysis the question of whether the income in qu