Marcinyshyn v. The Queen

Marcinyshyn v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2011-11-08
Neutral citation
2011 TCC 516
File numbers
2007-1402(IT)I
Judges and Taxing Officers
Dwayne W. Rowe
Subjects
Income Tax Act
Decision Content
Docket: 2007-1402(IT)I
BETWEEN:
BRUCE MARCINYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Sheila Marcinyshyn 2007-1409(IT)I and Martha Mawakeesic 2007-2221(IT)I
on September 21, 2011 at Thunder Bay, Ontario
Before: The Honourable D.W. Rowe, Deputy Judge
Appearances:
For the Appellant:
The Appellant himself
Counsel for the Respondent:
Ryan Gellings
____________________________________________________________________
JUDGMENT
The appeal from the reassessments made under the Income Tax Act for the 2002, 2003, 2004 and 2005 taxation years is dismissed, in accordance with the attached Reasons for Judgment.
Signed at Sidney, British Columbia this 8th day of November 2011.
“D.W. Rowe”
Rowe D.J.
Docket: 2007-1409(IT)I
BETWEEN:
SHEILA MARCINYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Bruce Marcinyshyn 2007-1402(IT)I and Martha Mawakeesic 2007-2221(IT)I
on September 21, 2011 at Thunder Bay, Ontario
Before: The Honourable D.W. Rowe, Deputy Judge
Appearances:
Agent for the Appellant:
Bruce Marcinyshyn
Counsel for the Respondent:
Ryan Gellings
____________________________________________________________________
JUDGMENT
The appeal from the reassessments made under the Income Tax Act for the 2002, 2003, 2004 and 2005 taxation years is dismissed, in accordance with the attached Reasons for Judgment.
Signed at Sidney, British Columbia this 8th day of November 2011.
“D.W. Rowe”
Rowe D.J.
Docket: 2007-2221(IT)I
BETWEEN:
MARTHA MAWAKEESIC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Bruce Marcinyshyn 2007-1402(IT)I and Sheila Marcinyshyn 2007-1409(IT)I
on September 21, 2011 at Thunder Bay, Ontario
Before: The Honourable D.W. Rowe, Deputy Judge
Appearances:
Agent for the Appellant:
Bruce Marcinyshyn
Counsel for the Respondent:
Ryan Gellings
____________________________________________________________________
JUDGMENT
The appeal from the reassessments made under the Income Tax Act for the 2003, 2004, 2005 and 2006 taxation years is dismissed, in accordance with the attached Reasons for Judgment.
Signed at Sidney, British Columbia this 8th day of November 2011.
“D.W. Rowe”
Rowe D.J.
Citation: 2011 TCC 516
Date: 20111108
Docket: 2007-1402(IT)I
BETWEEN:
BRUCE MARCINYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2007-1409(IT)I
AND BETWEEN:
SHEILA MARCINYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2007-2221(IT)I
AND BETWEEN:
MARTHA MAWAKEESIC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rowe D.J.
[1] Upon consent of counsel for the Respondent and of each Appellant, these appeals were heard on common evidence. The Appellants Martha Mawakeesic (“Mawakeesic”) and Sheila Marcinyshyn (“Marcinyshyn”) advised that the Appellant Bruce Marcinyshyn (“Bruce”) was authorized to act as their agent.
[2] The issue in the appeal of Marcinyshyn is whether the employment income earned by her from Native Leasing Services (“NLS”) in each of the taxation years 2002 to 2005, inclusive, was the personal property of an Indian situated on a reserve and whether the Minister of National Revenue (the “Minister”) correctly included amounts received by Marcinyshyn from NLS in determining her adjusted income for the purpose of determining her eligibility for the Canada Child Tax Benefit (CCTB) for the 2003 taxation year. Marcinyshyn is a member of the Peguis First Nation, Peguis, Manitoba.
[3] The issue in the appeal of Mawakeesic is whether the employment income earned by her from NLS in each of the taxation years 2003 to 2006, inclusive, was the personal property of an Indian situated on a reserve and whether the Minister correctly included amounts received from NLS in determining her adjusted income for the purpose of determining her eligibility for the Goods and Services Tax (GST) tax credit for the 2003, 2004 and 2005 taxation years. Mawakeesic is a member of the Sandy Lake First Nation, Sandy Lake, Ontario.
[4] The issue in the appeal of Bruce is whether he is entitled to deduct the personal credit for married status pursuant to paragraph 118(1)(a) of the Income Tax Act for the 2003 and 2004 taxation years on the basis the employment income received by his spouse – Marcinyshyn – during those years was the personal property of an Indian situated on a reserve. Bruce acknowledged that his appeal would follow the result in the appeal of Marcinyshyn.
[5] It is not in dispute that the head offices of both O.I. Employee Leasing Inc. (“O.I.”) and NLS were located on the Six Nations of the Grand River Reserve (“Six Nations Reserve”) and that NLS is a sole proprietorship – owned and operated by Roger Obonsawin – that leased employees to native organizations located off-reserve with the intent they could claim a tax exemption pursuant to section 87 of the Indian Act, R.S.C. 1985, c. I-5, as amended.
[6] On his own behalf and as agent for Marcinyshyn and Mawakeesic, Bruce advised that they were content to proceed on the basis that no oral evidence would be presented and that each of them was willing to rely on the material contained in the binder filed as Exhibit A-1, tabs 1 to 25, inclusive, in support of their request that each of their appeals be allowed. Reference hereafter to a tab means the document(s) are within said exhibit. Included in said exhibit are various documents pertaining to the employment of both Marcinyshyn and Mawakeesic, including an employment contract dated April 16, 2004. At other tabs, the Appellants included other material including case reports, extracts from the Canada Revenue (as it then was) website and information regarding the Fetal Alcohol Syndrome Disorder program (“FASD”) at Anishnawbe Mushkiki Inc (“AMI”).
[7] Counsel for the Respondent called Bernice Dubec (“Dubec”) to the stand. Dubec testified she is a status Indian and resides in Kenora, Ontario. She was the Executive Director of AMI from January 2000 to August 2010 and had been placed in that position as an employee of O.I.. AMI was incorporated on March 3, 2000 as a non-profit corporation and provides services to people of Aboriginal ancestry in accordance with the objects set forth in the Letters Patent, a copy of which was filed as Exhibit R-1. The objects are stated in paragraph 4 of the Letters Patent as follows:
(a) establishment of a medical centre and clinic in the Thunder Bay area to provide people of Aboriginal ancestry with primary health care;
(b) establishment of a health counselling program;
(c) promotion of health care and preventative medicine;
(d) creation and distribution of educational materials relating to health care;
(e) enhancing availability of culturally appropriate translation, medical interpretation and resources;
(f) encouraging Aboriginal people to reclaim knowledge and understanding of traditional teachings;
(g) increasing support mechanisms to provide necessary resources, advocacy, and access to traditional healing;
(h) enhancing collaboration and collective initiatives between agencies and communities;
(i) increase access to traditional Elders, medicines and ceremonies; and
(j) such other charitable programs in the areas of Aboriginal health care as the Directors deem advisable.
[8] Dubec testified that from its headquarters at Royston Court in Thunder Bay, AMI provides services to Aboriginal people whether status Indians, non-status, Métis or other ancestry. On occasion, services are provided to a family unit that may be blended in the sense it includes non-native members. The area covered by the AMI mandate is the District of Thunder Bay and even though the resources were limited, it delivered service to 22 population centres, including First Nation communities, small towns and villages. Dubec stated the aim of the organization was to utilize traditional healing methods to deal with health problems and to promote health care and a healthy lifestyle. AMI employed physicians and a chiropodist – part-time – and a nurse practitioner, nutritionist, diabetes educator – all full-time – and retained the services of consultants – including surgeons – as required. Dubec stated Mawakeesic and Marcinyshyn both worked for AMI. Mawakeesic worked as a Counsellor in the FASD program which included instruction in parenting skills and nutrition. AMI offered pre-natal and post-natal services. Dubec estimated that 80% of the work was performed at the Royston Court office, although some home visits were done within the city of Thunder Bay. About 10% of the total workload was devoted to workshops, seminars and classes and most of the remaining balance was provided to the residents on Fort William First Nation (“Reserve”), located 15 kilometres from the AMI office. Marcinyshyn was employed initially as a Child Care Worker and then worked in the FASD program where she performed substantially the same tasks as Mawakeesic.
[9] In cross-examination by Bruce, Dubec stated that most workers at AMI were employees of O.I. and that – initially – a version of AMI had been located on the Reserve and received its funding from an Aboriginal organization. The employment income of workers was exempt from income tax but the structure was modified through the issuance of Letters Patent whereby it became a self-governing organization funded by the Province of Ontario. Dubec stated there was no space on the Reserve to construct an adequate facility so AMI purchased the property on Royston Court to use as its headquarters and was able to expand the nature and scope of its programs in accordance with the objects of the corporation.
[10] With respect to the appeal of Marcinyshyn, the assumptions of fact – stated at paragraphs 18(b) to 18(e), inclusive, of the Reply to the Notice of Appeal (“Reply”) are:
…
b) The appellant is an Indian as defined in the Indian Act;
c) NLS had a head office on the Six Nations;
d) The duties of employment, the place of performance and the services provided by the appellant were off-reserve; and
e) The Appellant did not live on a reserve.
[11] With respect to the appeal of Mawakeesic, the relevant assumptions of fact are stated at paragraphs 23(b) to 23(e), inclusive, and paragraphs 24(b) to 24 (d), inclusive, of the Reply.
…
b) The appellant is an Indian as defined in the Indian Act;
c) NLS had a head office on the Six Nations;
d) The duties of employment, the place of performance and the services provided by the appellant were off-reserve; and
e) The appellant did not live on a reserve.
…
b) the appellant worked directly for Anishnawbe Mushkiki during the 2006 taxation year;
c) the appellant claimed $47,437 in income from Anishnawbe Mushkiki; and
d) Anishnawabe Mushkiki is not located on a reserve.
[12] Bruce submitted that it was apparent Marcinyshyn had entered into a contract dated April 1, 2002 – tab 1 – with NLS on the basis that any payment for her employment would be made from the NLS office located at Six Nations Reserve. Her name at that time was Sheila Blue. It was understood between the parties that her income would be exempt from income tax. The T4 slips issued by NLS – tab 7 – for the relevant years disclosed that no income tax had been deducted from her salary. Bruce stated that since payment for the employment had been made from an employer situated on a Reserve that the income was exempt. Bruce submitted that two recent decisions by the Supreme Court of Canada had transformed the application of earlier decisions to the point where the location of the employer – who owed a debt to Marcinyshyn and Mawakeesic for having provided their services during each pay period – was paramount and determinative of the issue of their right to an exemption from tax from employment income.
[13] Counsel for the Respondent submitted no evidence had been adduced on behalf of any Appellant to demonstrate that the assessments issued by the Minister were incorrect. Counsel submitted the jurisprudence relied on by Bruce did not alter the well-established body of jurisprudence concerning the tax exemption provided under section 87 of the Indian Act. It was apparent the employment of both Mawakeesic and Marcinyshyn was off-reserve and that less than 10% of all services provided by AMI were to residents of the Reserve and that the AMI mandate was to provide services to all persons of Aboriginal ancestry and – on occasion – also to those members of a family unit who were non-native.
[14] Relevant Legislation
Property exempt from taxation
87. (1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province, but subject to section 83 and section 5 of the First Nations Fiscal and Statistical Management Act, the following property is exempt from taxation:
…
(b) the personal property of an Indian or a band situated on a reserve.
81. (1) Amounts not included in income -- There shall not be included in computing the income of a taxpayer for a taxation year,
(a) statutory exemptions [including Indians] -- 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;
[15] The Supreme Court of Canada in R. v. Nowegijick, [1983] 1 S.C.R. 29, decided that property within the meaning of paragraph 87(1)(b) of the Indian Act included income. This decision gave rise to the situs test. At page 5 – in part – Dickson J. stated:
One point might have given rise to argument. Was the fact that the services were performed off the reserve relevant to situs? The Crown conceded in argument, correctly in my view, that the situs of the salary which Mr. Nowegijick received was sited on the reserve because it was there that the residence or place of the debtor, the Gull Bay Development Corporation, was to be found and it was there the wages were payable.
[16] In Williams v. Canada, [1992] 1. S.C.R. 877, the Supreme Court of Canada established a series of connecting factors to be utilized when determining the situs of personal property. As referred to by counsel for the Appellants in their submissions, that case concerned an appellant Indian who received regular unemployment insurance benefits as a result of working with a logging company and for his Band in a specially-funded project. In both cases, the work was performed on the reserve. At paragraphs 33 to 38, inclusive of the judgment of Gonthier J. – delivered for the Court – he stated:
33 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.
34 The appellant suggests that in deciding the situs of the receipt of income, a court ought to balance all of the relevant "connecting factors" on a case by case basis. Such an approach would have the advantage of flexibility, but it would have to be applied carefully in order to avoid several potential [page892] pitfalls. It is desirable, when construing exemptions from taxation, to develop criteria which are predictable in their application, so that the taxpayers involved may plan their affairs appropriately. This is also important as the same criteria govern an exemption from seizure.
35 Furthermore, it would be dangerous to balance connecting factors in an abstract manner, divorced from the purpose of the exemption under the Indian Act. A connecting factor is only relevant in so much as it identifies the location of the property in question for the purposes of the Indian Act. In particular categories of cases, therefore, one connecting factor may have much more weight than another. It would be easy in balancing connecting factors on a case by case basis to lose sight of this.
36 However, an overly rigid test which identified one or two factors as having controlling force has its own potential pitfalls. Such a test would be open to manipulation and abuse, and in focusing on too few factors could miss the purposes of the exemption in the Indian Act as easily as a test which indiscriminately focuses on too many.
37 The approach which best reflects these concerns is one which analyzes the matter in terms of categories of property and types of taxation. For instance, connecting factors may have different relevance with regard to unemployment insurance benefits than in respect of employment income, or pension benefits. The first step is to identify the various connecting factors which are potentially relevant. These factors should then be analyzed to determine what weight they should be given in identifying the location of the property, in light of three considerations: (1) the purpose of the exemption under the Indian Act; (2) the type of property in question; and (3) the nature of the taxation of that property. The question with regard to each connecting factor is therefore what weight should be given that factor in answering the question whether to tax that form of property in that manner [page893] would amount to the erosion of the entitlement of the Indian qua Indian on a reserve.
38 This approach preserves the flexibility of the case by case approach, but within a framework which properly identifies the weight which is to be placed on various connecting factors. Of course, the weight to be given various connecting factors cannot be determined precisely. However, this approach has the advantage that it preserves the ability to deal appropriately with future cases which present considerations not previously apparent.
[17] At paragraphs 55 and 56, Mr. Justice Gonthier continued:
55 Furthermore, as can be seen from our discussion of the test for the situs of unemployment insurance benefits, the creation of a test for the location of intangible property under the Indian Act is a complex endeavour. In the context of unemployment insurance we were able to focus on certain features of the scheme and its taxation implications in order to establish one factor as having particular importance. It is not clear whether this would be possible in the context of employment income, or what features of employment income and its taxation should be examined to that end.
56 Therefore, for the purposes of the present appeal, we merely note that the employment of the appellant by which he qualified for unemployment insurance benefits was clearly located on the reserve, no matter what the proper test for the situs of employment income is determined to be. Because the qualifying employment was located on the reserve, so too were the benefits subsequently received. The question of the relevance of the residence of the recipient of the benefits at the time of receipt does not arise in this case since it was also on the reserve.
[18] The judgment – at paragraphs 61 to 62, inclusive – concluded as follows:
61 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 [page900] 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.
62 With regard to the unemployment insurance benefits received by the appellant, a particularly important factor is the location of the employment which gave rise to the qualification for the benefits. In this case, the location of the qualifying employment was on the reserve, therefore the benefits received by the appellant were also located on the reserve. The question of the relevance of the residence of the recipient of the benefits at the time of receipt does not arise in this case.
[19] Recently, the Supreme Court of Canada decided two cases, both involving the question of whether interest income paid to a status Indian was situate on a reserve and therefore exempt from taxation. Bastien Estate v. Canada, 2011 SCC 38 (Bastien) was heard together with Dubé v. Canada, 2011 SCC 39 (Dubé). The facts, proceedings and issue were set out in the reasons of Cromwell J. at paragraphs 5 to 10, inclusive as follows:
II. Facts, Proceedings and Issue
1. Facts
…
[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 — whether the income was derived from the economic mainstream — 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 — that is, the profit generated from the capital invested in a financial institution — 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?
[20] At paragraphs 11 and 12, Cromwell J. commenced his analysis and stated:
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.
[21] Cromwell J. – at paragraph 16 – referred to Williams, supra, and acknowledged the location of property is “not objectively easy to determine.” He commented that:
… 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. …
[22] In the course of his analysis concerning the location of income, Cromwell J. – at paragraphs 18 to 28 – continued:
[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 — the payment of interest pursuant to a contract — 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 question benefits the traditional Native way of life. For example, in Canada v. Folster, [1997] 3 F.C. 269, the Federal Court of Appeal attributed the significance of this factor to La Forest J. in Mitchell, observing that he had “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” (para. 14). In Recalma, the Federal Court of Appeal identified as a relevant consideration the question of whether the investment income benefits the traditional Native way of life (para. 11). This factor has been relied on in cases in the Tax Court and the Federal Court of Appeal since Recalma: see, e.g., Lewin v. Canada, 2001 D.T.C. 479, at paras. 36 and 63–64.
[27] The reference to rights of an “Indian qua Indian” in Mitchell, which was repeated in Williams, and the linking of the tax exemption to the traditional way of life have been criticized: C. MacIntosh, “From Judging Culture to Taxing ‘Indians’: Tracing the Legal Discourse of the ‘Indian Mode of Life’” (2009), 47 Osgoode Hall L.J. 399, at p. 425. However, I do not read either judgment as departing from a focus on the location of the property in question when applying the tax exemption. The exemption provisions must be read in light of their purpose, but not, as Professor MacIntosh puts it, be “let loose from the moorings of their express language” (p. 425). A purposive interpretation goes too far if it substitutes for the inquiry into the location of the property mandated by the statute an assessment of what does or does not constitute an “Indian” way of life on a reserve. I do not read Mitchell or Williams as mandating that approach.
[28] In my respectful view, Recalma and some of the cases following it have gone too far in this direction. The exemption was rooted in the promises made to Indians that they would not be interfered with in their mode of life: see, e.g., R. H. Bartlett, “The Indian Act of Canada” (1977-1978), 27 Buff. L. Rev. 581, at pp. 612-13; Mitchell, at pp. 135–36. However, a purposive interpretation of the exemption does not require that the evolution of that way of life should be impeded. Rather, the comments in both Mitchell and Williams in relation to the protection of property which Indians hold qua Indians should be read in relation to the need to establish a connection between the property and the reserve such that it may be said that the property is situated there for the purposes of the Indian Act. 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. See M. O’Brien, “Income Tax, Investment Income, and the Indian Act: Getting Back on Track” (2002), 50 Can. Tax J. 1570, at pp. 1576 and 1588; B. Maclagan, “Section 87 of the Indian Act: Recent Developments in the Taxation of Investment Income” (2000), 48 Can. Tax J. 1503, at p. 1515; M. Marshall, “Business and Investment Income under Section 87 of the Indian Act: Recalma v. Canada” (1998), 77 Can. Bar Rev. 528, at pp. 536-39; T. E. McDonnell, “Taxation of an Indian’s Investment Income” (2001), 49 Can. Tax J. 954, at pp. 957-58.
[23] In Bastien, supra the property in question was interest income derived from term deposits in a branch of Caisse Populaire Desjardins du Village Huron, situated on the Wendake Reserve. Cromwell J. held that the investment income earned from the term deposits was personal property and – except for the exemption – would be included as income from property since it was not part of any business activity.
[24] Cromwell J. returned to the matter of the connecting factors and – at paragraphs 38 to 42, inclusive – stated:
(iv) Connecting Factors
[38] Williams requires the court to identify the connecting factors for the type of property in question: p. 892. Gonthier J. identified several potentially relevant connecting factors including: “the residence of the debtor, the residence of the person receiving the benefits, the place the benefits are paid, and the location of the e