Wyse v. Canada (National Revenue)

Wyse v. Canada (National Revenue)
Court (s) Database
Federal Court Decisions
Date
2007-05-18
Neutral citation
2007 FC 535
File numbers
T-1799-05, T-1800-05, T-1801-05, T-1802-05
Notes
Digest
Decision Content
Date: 20070518
Docket: T-1799-05
T-1800-05
T-1801-05
T-1802-05
Citation: 2007 FC 535
Ottawa, Ontario, May 18, 2007
PRESENT: The Honourable Mr. Justice Lemieux
BETWEEN:
ARNOLD WYSE, RAYMOND CLAYTON WYSE
WAYNE MANSON AND JAMES WESLEY
Applicants
and
THE MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
Introduction
[1] The issue in these judicial review applications is whether the wages earned by each of the applicants while working during the years 1988 to 1998 (the relevant years) for Coastland Wood Industries Ltd. (Coastland) at its veneer mill (the Mill) in Nanaimo B.C. were “situated on the reserve” so as to qualify for the exemption from income tax provided in paragraph 87(1)(b) of the Indian Act. The judicial review applications were heard together on the basis of a common consolidated evidentiary record. These reasons for judgment and judgment are common to each judicial review application and a copy is directed to be placed in each file.
[2] The applicants, Arnold Wyse, Raymond Clayton Wyse, Wayne Manson and James Wesley, (the applicants) are all status Indians and members of the Snuneymuxw First Nation (the “SFN”), a band within the meaning of the Indian Act. They reside on the Nanaimo Town Indian Reserve No. 1 (the “Reserve”). The Supreme Court of Canada in Nowegijick v. The Queen, [1983] 1 SCR 29 held that personal property referred to in paragraph 87(1)(b) of the Indian Act included tax on income earned.
[3] They seek judicial reviews of a September 15, 2005, decision of a delegate of the Minister of National Revenue (the “delegate”), denying their third level fairness applications for reassessment under section 152 (4.2) of the Income Tax Act (ITA), (the fairness provision).
[4] Section 152(4.2) of the ITA confers a discretion on the Minister to reassess tax liability beyond the expiry of the normal re-assessment period. The applicants first sought relief under the fairness provision on October 23, 2003 (the First level request) for re-assessment so as to be in a position to claim income tax refunds on tax paid on employment income earned during the relevant years.
[5] The parties do not disagree with the approach required by the decision-maker in order to properly evaluate whether the Minister’s discretion should be exercised.
[6] The task of the decision-maker is to determine what the state of the law was with respect to the situs of employment income in each of the years the applicants worked for Coastland for which they are claiming paragraph 87(1)(b) of the Indian Act immunized them from income tax liability. This approach flows from the Fairness provision as interpreted in Information Circular entitled “Guidelines 92-3 for Refunds Beyond the Normal Three-Year Period” and, in particular, the following provision:
“The Department will issue a refund or reduce the amount owed if it is satisfied that such a refund or reduction would have been made if the return or request has been filed or made on time, and provided that the necessary assessment is correct by law and has not been previously allowed.” [Emphasis mine]
[7] Section 87 of the Indian Act, in part, reads:
Indian Act
I-5
TAXATION
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:
(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.
Loi sur les Indiens
I-5
TAXATION
Biens exempts de taxation
87. (1) Nonobstant toute autre loi fédérale ou provinciale, mais sous réserve de l’article 83 et de l’article 5 de la Loi sur la gestion financière et statistique des premières nations, les biens suivants sont exemptés de taxation :
a) le droit d’un Indien ou d’une bande sur une réserve ou des terres cédées;
b) les biens meubles d’un Indien ou d’une bande situés sur une réserve.
Facts
[8] Except in a few instances, the material facts are not in dispute. Arnold Wyse supported the applicants’ judicial reviews by filing an affidavit. Mark McWhinney who made the impugned decision did likewise for the Respondent. Neither were cross-examined.
[9] The applicants are all status Indians and members of the SFN. They reside on the Reserve.
[10] During the relevant period (1988 to 1998) the applicants were all employed by Coastland Wood Industries Ltd. (“Coastland”) at its veneer mill (the Mill) in Nanaimo, British Colombia. The Mill and the administrative offices of Coastland are not located on the Reserve. However, Coastland’s log sort area (the log sort area) is located on the Reserve land. It is used to store logs which are then sorted and fed into the Mill to make wood products.
[11] From 1987 to 1992, Coastland had a series of permits from the Department of Indian Affairs and Northern Development (DIAND) to use the log sort area portion of the Reserve
[12] As part of the consideration for use of the log sort area portion of the Reserve, [in the operation of its facilities in Nanaimo] Coastland verbally agreed with the First Nation to establish work opportunities for its members.
[13] Coastland has, since 1992, leased that portion of the Reserve from DIAND, with the approval of SFN (the “lease”). The lease explicitly provides SFN members are to be given preference in hiring, if qualified. The hiring policy agreement is Schedule “E” to the lease. Coastland agreed to ensure that the members of the SFN would constitute 18% of its permanent work force.
[14] There is no evidence in the record that any of the applicants, as part of their regular duties, ever worked in the log sort area during the relevant period. There is no dispute the applicants’ job duties were as workers in the Mill. However, in his affidavit, Mr. Wyse deposed at paragraph 8 he worked on the Reserve portion of the Mill. This fact is contested by the Respondent’s deponent who asserts, after verification with Coastland officials, only 3 SFN members ever worked on the Reserve portion of the Mill and none of them were the applicants.
[15] The applicants requested Coastland not to deduct taxes from their pay, Coastland refused to do so. This being said, in their tax returns for the taxation years 1988 to 1998, the applicants did not claim any tax exemptions on their employment income from Coastland nor did they file Notices of Objections to the assessments of their income tax returns for the relevant period.
[16] In 1999, the Federal Court of Appeal rendered its Judgment in Amos v. Canada, [1999] F.C.J. no. 873 (F.C.A.).
[17] In written submissions at all three fairness level reviews counsel for the applicants asserted the entire Mill is a single integrated whole with each of the various components representing an indispensable link in the production process arguing the Mill could not function without the log sort area. The vital integration of the leased portion of the Reserve into the Mill’s production process is contested by the Respondent based on information received from Coastland officials.
[18] As a result of the Amos case, from 1999 onward, the Canada Revenue Agency (CRA) has allowed a tax exemption to SFN members residing on the reserve who were employed at Coastland. The applicants have been beneficiaries of this exemption.
The applications for re-assessment and the delegate’s decision
(1)_The first re-assessment application and decision
[19] In a letter dated October 23, 2003, counsel on behalf of the applicants made a fairness request under subsection 152(4.2) of the Income Tax Act asking the Minister reassess their tax assessments from 1988 to 1998 in order to be refunded all income tax paid and free of all penalties and interest calculated on taxes owed in that period.
[20] The applicants said, in their case, sufficient factors exist so as to connect their income to the Reserve.
[21] In the October 23, 2003 letter, the applicants stated the purpose of section 87 of the Indian Act, is “to preserve the entitlement of Indians to their reserve lands to ensure that the use of reserve lands was not eroded by the ability of government to tax” (Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85).
[22] The applicants also submitted they satisfied all of the requirements to qualify for the income tax exemption on the basis of the existing jurisprudence on this issue during the relevant time. These requirements were:
· The taxpayer is an Indian;
· The property being taxed is personal property;
· The personal property belongs to an Indian; and
· The personal property is situated on a reserve.
[23] The applicants argued the only issue is whether the applicants’ employment income could be said to be situated on the Reserve. They cited the Supreme Court of Canada’s decision in Williams v. Canada [1992] 1 S.C.R. 877 and said they met the connecting factors test established in that case. The applicants also argued in their October 23, 2003 letter Coastland’s Preferential Hiring Policy is, in light of the purpose of section 87 of the Indian Act, an important and dominant connecting factor. They also relied on Amos, above.
[24] The first level fairness request was denied on the basis the results of the Amos decision could not be applied retroactively since the case was decided in 1999.
(2) The second level re-assessment application and decision
[25] On March 16, 2004, the applicants made a second fairness request on the basis the initial decision maker failed to engage in the required legal analysis in exercising his discretionary decision-making authority.
[26] The applicants resubmitted they satisfied the requirements to benefit from a tax exemption in accordance with section 87(1)(b) of the Indian Act and the applicable jurisprudence.
[27] The applicants also reiterated their reliance on the connecting factors in Williams, above, and clarified their request for tax reassessment for the taxation years 1988 to 1998 for their employment with Coastland was not based primarily on the Amos case.
[28] On July 19, 2004, the Minister refused the second request on the basis that, even if the request had been made in a timely fashion, the income would not been found to be tax exempt. [Emphasis mine].
[29] Citing Nowegijick, above, the second level decision-maker stated the Supreme Court of Canada had decided in that case the applicants would qualify for exemption if Coastland’s head office was on the Reserve, if the applicants lived on the Reserve and were paid from head office. Since Coastland’s head office was off-reserve, the applicants could not meet the required criteria.
[30] The decision-maker then referred to Williams, above, and stated the Supreme Court of Canada held it was important to consider whether the activity generating the income “was intimately connected to the Reserve” or whether it was more appropriate to consider it as part of the “commercial mainstream”.
[31] The decision-maker then referred to Williams, above, and stated the Supreme Court of Canada stated it was important to consider it as part of the “commercial mainstream”.
[32] The decision-maker at this level then stated in 1994 to help in this determination of the connecting factors, guidelines were prepared and the applicants met none of them, i.e., they were not working on the Reserve; Coastland was not located on the Reserve and the activity generating the income is more appropriately considered as part of the “commercial mainstream”. She concluded by saying the “employment income earned from 1994 to 1999 cannot be considered as tax-exempt.”
[33] Finally, the decision-maker at the second level referred to Amos, above. She stated the circumstances “surrounding this case are similar to your own.” She concluded:
“The court’s interpretation of the taxation on personal property of a Registered Status Indian has changed dramatically since 1983 and continues to be challenged today. Each time the challenges proceed through the courts and result in a final decision at the highest level of court, that decision becomes final and binding to all parties involved and to anyone else with similar or identical facts, from the date of the final decision. As a result, effective 1999, employees of Coastland Wood Industries Limited who are Registered Status Indians have been considered by the Agency to be exempt from tax.
Prior to that final court decision, the previous interpretation is binding on the individuals who have similar or identical facts. Since the tax laws in place from 1987 to 1999 did not consider the income you earned from Coastland Wood Industries Limited as tax exempt, the Agency is not able to consider the income as exempt under the Fairness Legislation.” [Emphasis mine]
[34] On August 19, 2004, the applicants launched a judicial review in Federal Court challenging the Minister’s decision. The Minister consented to judgment and thus the matter was returned to the Minister for reconsideration. As I understand it, the reason for the Minister’s consent was a concern on his part two of the four applicant may not have received appropriate consideration because their allegation of having performed part of their employment duties on the leased part of the Reserve.
(3) The third level review as a result of the consent judgment
[35] Thus a third review of the request for reassessment was investigated by Anyta Neustaedter beginning on April 25, 2005. That investigation was partly based on employment information which she obtained from Coastland for the relevant period including information on where its employees worked, how many of its employees worked in the log sort area, who they were and the lack of vital integration between the log sort area to the Mill’s operation. The applicants did not challenge the results of her investigation in this Court.
[36] As noted, it was determined that only three of the Coastland employees worked on the log sort area and none of its applicants were among the three.
[37] On August 18, 2005, she formulated recommendations for each applicant by forwarding her reports to the Director of Surrey Tax Services, Mark McWhinney, the decision-maker, who reviewed and agreed with them.
[38] On September 15, 2005, the decision-maker wrote to each of the applicants denying their third fairness request. This third level decision to reject the applicants’ request for reassessment is the decision at issue in these judicial review applications.
[39] Mr. McWhinney, Director of the Surrey Tax Centre for Canada Customs and Revenue Agency, stated the applicants’ counsel based his arguments to allow 100% of your employment income from Coastland on two points.
(a) “The reserve-based functions cannot be separated out from the functions performed off-reserve, as all the functions form a single, integrated whole, with each production component forming an indispensable link in the production process. Without the use of the area located on reserve, the Mill would cease to operate.”
(b) “the preferential hiring policy entered into by Coastland and the Snuneymuxw First Nation…..”
[40] Mr. McWhinney wrote:
“These points were argued successfully in the “Amos” case in 1999, and your employment income from Coastland has been exempt from tax since 1999. Although Mr. Gailus states that he is not asking us to apply this decision retroactively, if we allow 100% of your employment income from Coastland exempt from tax for the years prior to 1999 based on the above noted arguments, we would in fact be applying the Amos decision retroactively.
It has been established that Coastland’s administrative office is located “off reserve” and that the “Mill” is also located “off reserve” for the years under review. It has also been established that the “log sort area” is located” on reserve” and that some employment duties such as scaling, bucking, sorting and bundling are performed in this area. Information available to our office indicates that you did not work in the reserve area at any time during these years. Therefore, your employment income from Coastland is not eligible for the exemption under Section 87 of the Indian Act.
Information Circular 92-3, “Guidelines for Refunds Beyond the Normal Three -Year Period, “ sets out the guidelines that the Agency must follow when applying the Fairness Legislation. The circular states, “The department will issue a refund or reduce the amount owed it is satisfied that such a refund or reduction would have been made if the return or request had been filed or made on time, and provided that the necessary assessment is correct by law and has not been previously allowed.
It is based on this statement that I must deny your request. If you had claimed the income as exempt from tax under Section 87 of the Indian Act when you initially filed your returns, the income would not have been accepted as tax exempt.” [Emphasis mine]
The evolving jurisprudence
The Nowegijick case
[41] On January 25, 1983, the Supreme Court, in R. v. Nowegijick, above, held the situs of one’s salary is determined by the location of the debtor. Therefore, the location where one’s employment duties were performed was not relevant. In Nowegijick, the debtor was the employer, a company which had its head office and administrative offices on a reserve, but whose employees performed duties off reserve.
The Mitchell case
[42] On June 21, 1990, the Supreme Court of Canada handed down its decision in Mitchell v. Peguis Indian Band [1990] 2 S.C.R. 85. The principal point decided by the Court was whether the term “Her Majesty” used in section 90(1)(b) of the Indian Act extended to a provincial Crown. That provision reads:
Property deemed situated on reserve
90. (1) For the purposes of sections 87 and 89, personal property that was
(a) purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands, or
(b) given to Indians or to a band under a treaty or agreement between a band and Her Majesty,
shall be deemed always to be situated on a reserve.
Biens considérés comme situés sur une réserve
90. (1) Pour l’application des articles 87 et 89, les biens meubles qui ont été :
a) soit achetés par Sa Majesté avec l’argent des Indiens ou des fonds votés par le Parlement à l’usage et au profit d’Indiens ou de bandes;
b) soit donnés aux Indiens ou à une bande en vertu d’un traité ou accord entre une bande et Sa Majesté,
sont toujours réputés situés sur une réserve.
[43] The importance of Mitchell rests in the various statements made by Justice LaForest as to the purpose of section 87 and 89 of the Indian Act, protecting personal property from taxation (section 87) and from, inter alia, seizure or distress, (section 89). He wrote the following at page 131:
“In summary, the historical record makes it clear that ss. 87 and 89 of the Indian Act, the sections to which the deeming provision of s. 90 applies, constitute part of a legislative "package" which bears the impress of an obligation to native peoples which the Crown has recognized at least since the signing of the Royal Proclamation of 1763. From that time on, the Crown has always acknowledged that it is honour-bound to shield Indians from any efforts by non-natives to dispossess Indians of the property which they hold qua Indians, i.e., their land base and the chattels on that land base.
It is also important to underscore the corollary to the conclusion I have just drawn. The fact that the modern-day legislation, like its historical counterparts, is so careful to underline that exemptions from taxation and distraint apply only in respect of personal property situated on reserves demonstrates that the purpose of the legislation is not to remedy the economically disadvantaged position of Indians by ensuring that Indians may acquire, hold, and deal with property in the commercial mainstream on different terms than their fellow citizens. An examination of the decisions bearing on these sections confirms that Indians who acquire and deal in property outside lands reserved for their use, deal with it on the same basis as all other Canadians.” [Emphasis mine]
The Williams case
[44] On April 16, 1992, the Supreme Court of Canada decided Williams v. Canada, above, in which the issue was where was the situs of unemployment insurance benefits received by Mr. Williams, a member of the Penticton Indian Band residing on its Reserve No. 1 for which he qualified because of his employment with a logging company situated on the reserve and his employment by the Band in a “NEED” project on the reserve. In both cases, the work was performed on the reserve, the employer was located on the reserve and he was paid on the reserve. During his employment, contributions to the unemployment scheme were paid by both Mr. Williams and his employers. Mr. Williams claimed exemption under paragraph 87(1)(b) of the Act. The Minister denied he was entitled to the exemption on the basis the location of the debtor was not on the reserve but Vancouver, where his unemployment insurance cheques were mailed from or Ottawa where the Commission’s head office was located.
[45] As will be seen, Justice Gonthier, on behalf of the Court, moved away, in the context of determining the situs of the receipt of such benefits, from the exclusive factor of the location of the debtor to a search for and the balancing of relevant connection factors. In his words:
The approach which best reflects these concerns are 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 would amount to the erosion of the entitlement of the Indian qua Indian on a reserve.
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. [Emphasis added.]
[46] Justice Gonthier then enumerated the connecting factors which had been suggested to the Court: the residence of the debtor, the residence of the person receiving the benefits, the place where the benefits are paid and the location of the employment in which gave rise to the qualifications for the benefits.
[47] For reasons he explained, he concluded both the residence of the debtor and the place where the benefits are paid were connecting factors but of limited weight in the context of the situs of unemployment insurance benefits.
[48] He then focussed on the residence of the recipient and the location of the qualifying employment as connecting factors.
[49] As to the second factor, the location of the qualifying income, he analysed the nature of unemployment insurance paid through employers/employee premiums deductible from taxable income with benefits included in taxable income leading him to conclude unemployment benefits were not benefits granted by the government out if its general revenues.
[50] Furthermore, because the benefits were based on premiums arising out of previous employment, the connection between employment and benefits is a strong one and the location of the qualifying income is an important factor in establishing whether the taxation of subsequent benefits would erode the entitlements of an India qua Indian are the reserve. He reasoned at page 896:
“…. For in the case of an Indian whose qualifying employment income was on the reserve, the symmetry in the tax implications of premiums and benefits breaks down. For such an Indian, the original employment income was tax-exempt. The taxation paid on the subsequent benefits therefore does more than merely offset the tax saved by virtue of the premiums. Instead, it is an erosion of the entitlements created by the Indian’s employment on the reserve.” [Emphasis mine]
[51] Discussing the location of the qualifying income, Justice Gonthier wrote that “it was assumed by the parties that Mr. Williams’ previous employment which gave issue to the benefits was also located on the reserve since he resided on the reserve and the employers were also located there which led him to be cautious because of the Court qualifying the non-exclusiveness of the Nowegijick principle he wrote:
“However, this would not be an appropriate case in which to develop a test for the situs of the receipt of employment income. All the potential connecting factors with respect to the qualifying employment of the appellant point to the reserve. The employer was located on the reserve, the work was performed on the reserve, the appellant resided on the reserve, and he was paid on the reserve. A test for the situs of employment income could therefore only be developed in an abstract vacuum in this case, since there is no real controversy of relevant factors pulling in opposite directions. The same would be true of any consideration of the weight, if any, to be given to the residence [page898] of the appellant upon receipt of the benefits as this was also on the reserve.
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.
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.”
The Folster case (sub-nom Clarke v. Minister of National Revenue)
(a) The Tax Court decision
[52] After the Supreme Court of Canada decided Williams, above, Judge Hamlyn of the Tax Court rendered his September 29, 1992 decision [reported at 92 D.T.C. 2267] in the matter of seven status Indian of the Norway House Indian Reserve (the Reserve) employed by various employers at various locations – on and off Reserve. Marianne Folster claimed to be exempt from income tax pursuant to the provisions of the Indian Act (section 87 or 90).
[53] Marianne Folster, a status Indian and a resident of the Norway House Reserve (the Reserve) was employed as a hospital administrator by Health and Welfare Canada (HWC) at the Norway House Indian Hospital (the hospital) which is in the vicinity of but not within the geographical boundaries of the Reserve. Her duties were primarily performed at the Hospital where 80% of persons served were 80% status Indians.
[54] She received her pay cheque at the hospital issued by Supply and Services Canada’s Winnipeg office. The hospital was built by the federal government in order to provide for health care of Indians (treaty and non-treaty). The funds for the status Indians who use the hospital are from the estimates of HWC specifically designated as funds for Indian Health Services. Finally, it should be said the hospital where Ms. Folster performed her duties replaced an old hospital built on Reserve lands.
[55] The Tax Court judge allowed her appeal on the basis he employment income was deemed to be situated on the Reserve pursuant to paragraph 90 (1)(a) of the Indian Act not section 87 which concerns us.
(b).The Federal Court, Trial Division decision
[56] On October 13, 1994, Justice Cullen of this Court, [1995] 1 F.C. 561, allowed the Minister’s appeal in the Folster case. He found paragraph 90(1)(a) of the Indian Act was inapplicable. He then engaged in the section 87 analysis of connecting factors based on Williams, above.
[57] Recognizing that in Williams, above, the Supreme Court of Canada had declined to comment on the relevant connecting factors that are to be used in determining the situs of employment income, he was of the view the same factors identified for the situs of unemployment insurance benefits could be used in the case before him and gave the greatest weight, in the circumstances, to the residence of the employer and the location where the duties of employment were performed. He concluded the residence of Ms. Folster as important as the two others he mentioned.
[58] His analysis of the situs of Ms. Folster’s employment income was as follows:
“The defendant's employer was the hospital. She performed her duties of employment at the hospital which is in the vicinity of, but not within, the geographical boundaries of the reserve. The defendant's employer is not resident on the reserve; likewise, she performed the duties of her employment off the reserve. However, the defendant did reside on the reserve.
As in the case of Elizabeth Ann Poker, the place of employment was not physically on the reserve, but the nature or purpose of the defendant's employment was closely connected to the reserve. The hospital was established pursuant to the decision to provide health care for Indians by the Government of Canada. It was built to replace a hospital that was originally located on the reserve. It is funded by the Government in its decision to support the health care of Indians. Approximately 80 per cent of the persons served by the hospital are status Indians. The circumstances surrounding the employment are closely connected to the reserve.
However, despite the circumstances surrounding the defendant's employment, neither the defendant's employer nor the location of her employment were on the reserve. It is not sufficient, in my view, to find that the defendant's employment was for the benefit of Indians on the reserve. Such an interpretation would go beyond preventing the erosion of the entitlement of an Indian qua Indian on a reserve. Conceivably, such an interpretation could mean that all Indians who lived on a reserve would not be subject to income tax, regardless of where or for whom they worked. Although this may be a means to redress economic disadvantage, it does not accord with the purpose of the tax exemption provisions.
In summary, although the defendant resided on the reserve, her employer and her place of employment were off the reserve. The circumstances surrounding her employment are closely connected to the reserve. However, absent any connecting factor other than the taxpayer's residence, employment duties which are to the benefit of Indians on a reserve are not sufficient to tie the income arising from the employment to the reserve. Accordingly, I have determined that the employment earnings of the defendant are not situated on the reserve.
The plaintiff's appeal with respect to F. Marianne Folster is allowed. Although the circumstances surrounding her employment at the hospital were strongly connected to the reserve, neither her employer nor the location where she performed the duties of her employment was located on the reserve. Although the denial of her tax exemption leads to an intuitively anomalous result, given the physical proximity of the hospital to the reserve and the population serviced by the hospital, I am hesitant to find that work for the benefit of Indians is sufficient to bring income arising from that work into tax exempt status, absent other connecting factors. Such an interpretation would go beyond preventing the erosion of the entitlement of an Indian qua Indian on a reserve and act as a means to redress economic disadvantage. Although that is a worthwhile goal, it is the role of Parliament, and not of this Court, to find the way to reach it.
(c)The Federal Court of Appeal decision
[59] On May 22, 1997, the Federal Court of Appeal allowed Ms. Folster’s appeal, [1997] F.C.J. No. 664, finding that the exemption provided for in paragraph 87(1)(b) of the Indian Act applied. Linden J.A. wrote the Court’s unanimous reasons stating the sole legal issue was whether her employment income “was situated on the reserve”.
[60] Justice Linden was of the view the trial judge “failed to fully appreciate the legislative purpose of the section 87 tax exemption is designed to achieve which is to protect property held by Indians qua Indians on reserves so that their traditional way of life would not be jeopardized.”
[61] Justice Linden described Justice Gonthier’s connecting factors test in Williams, above, as “a new test” and said this at paragraph 20 of his reasons:
“In my respectful view, if the Trial Judge's result is, as he described it, "intuitively anomalous", this is a signal that the connecting factors test has not been applied properly. 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.” [Emphasis mine]
[62] He concluded the two connecting factors relying upon by Cullen J. were inadequate in the context of Ms. Folster case and wrote at para. 27 of his reasons:
“Thus, a more in-depth analysis reveals that the connecting factors relied upon by the Trial Judge were inadequate in the context of this case. The inquiry must, therefore, be expanded in order to consider other connecting factors. 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. Assessing these factors in the context of this case, I am of the view that the tax exemption must be accorded to the appellant's income in order to avoid the erosion of an Indian entitlement. The personal property at issue is income earned by an Indian who is resident on a Reserve, and who works for a Hospital which attends to the needs of the Reserve community; a Hospital that was once located on, and is now adjacent to, the Reserve it services [Emphasis mine].
[63] He concluded as follows at 32 of his reasons:
“On the facts of this case, the residence of the taxpayer, the nature of the service performed, the history of the institution in question, and the circumstances surrounding the employment all received great weight in the purposive interpretation of section 87. On the contrary, the residence of the employer, even if that could be determined, and the metes and bounds location where the duties were performed, although certainly relevant, were granted less weight than in other cases.” [Emphasis mine]
[64] Finally, he found no assistance in the guidelines issued by the Respondent Minister for the application of section 87 of the Indian Act because “a central premise of Williams is that the relative weighting of the relative factors must proceed on a case by case basis” acknowledging “the guidelines may assist in routine cases it is not possible to establish, in advance, the precise formula by which employment income is to be assessed in all cases”.
The Amos Case
[65] The Federal Court of Appeal decided in Amos, above, on May 18, 1999 reversing a judge of the Tax Court who had decided on June 22, 1998 against the application of paragraph 87(1)(b) in respect of employment income earned in 1991, 1992, and 1993 by two members of the Nootka Indian Band residing on its Reserve No. 12. The circumstances surrounding their employment were closely analogous to the facts at hand, which is why since 1999 the employment income received by the applicants has been considered tax-exempt.
[66] The similar facts in Amos were:
• Employment of status Indians at pulp mill then owned by CP Forest Products (CP) and located mainly on company-owned property. (439.84 acres);
• Lease by CP of 28.8 acres out of 39 acres of reserve land which included CP’s agreement “to give members of the Nootka Indian Band preference in employment in its operation of the premises to the extent that such members are suitable and available for such employment”;
• Use of the leased reserve land for the storage of the hog-fuel pile (a fuel source);
• Use for the storage of two woodchip piles, all of which are related to the production of pulp;
• Mrs. Amos never performed part of her employment duties on the leased reserve land;
• She picked up her cheque from the company at the payroll office located on the non –reserve portion of the Mill.
[67] The Tax Court judge referred to the connecting factors set out in the Federal Court of Appeal’s decision in Folster v. The Minister of National Revenue, [1997] D.T.C. 5315 quoting Linden J.A. on behalf of the FCA as follows:
“On the facts of this case, the residence of the taxpayer, the nature of the service performed, the history of the institution in question, and the circumstances surrounding the employment all received great weight in the purposive interpretation of section 87. On the contrary, the residence of the employer, even if that could be determined, and the metes and bounds location where the duties were performed, although certainly relevant, were granted less weight than in other cases.” [Emphasis mine]
[68] The Tax Court judge came to a different conclusion on the facts of the case before him: He wrote:
“Analysing the connecting factors set out in Folster, it is apparent that the Mill’s operation was purely a commercial endeavour conducted by the Company wholly unrelated to any Reserve activity. Further, the Appellant’s employment with the Company is unrelated to residence and the Mill’s occupancy of the Reserve lands. Although a portion of the Mill where the Appellant worked was situated on the leased Reserve land, the occupation of that land was ancillary to the Mill’s operation. The provision in the lease to give members of the Nootka Band of Indians preference in employment in the operations on the