The current Indian occupation of Revenue Canada offices in Toronto stems from proposed taxation changes which would bring an end to certain tax exemptions enjoyed by Indians.
Tax exemptions for Indians have existed in one form or another since before Confederation.
Current tax exemptions are found in federal legislation, namely the Indian Act and in the Cree-Naskapi (of Quebec) Act. These acts create an exemption for Indians or Bands from taxation on land or personal property situated on a reserve or Category IA or IA-N lands.
The term “personal property” includes income. Therefore, the income of an Indian or Band is exempt from taxation if the income is situated on a reserve or Category IA or IA N lands. The test for determining whether income came from a reserve is less dear. And it is this ambiguity which has given rise to the current controversy.
In 1983 the Supreme Court of Canada dealt with the issue in the case of Nowegijick v. Minister of National Revenue, which involved an Indian employed by a Band-owned corporation to perform work at an off-reserve location. The Supreme Court of Canada decided that for tax purposes, Nowegijick’s employment income was held to be tax exempt because his employer, the Band-owned corporation, was located on-reserve, even though he had performed the work off-reserve.
As a result of the Nowegijick decision, Revenue Canada allowed Indian employees of reserve-based employers to claim a tax exemption on their employment income, regardless of where the employee resided or where the work was performed.
However, in 1992 the Supreme Court heard the case of Williams v. Canada and rendered a decision which cast some uncertainty over the test developed in Nowegijick. Williams involved the taxation of unemployment insurance benefits which were paid to an on-reserve Indian who had worked and been paid on the reserve.
The Supreme Court indicated that the residence of the employer is not necessarily determinative of whether income is situated on a reserve. One must consider the factors connecting the income to a reserve. Other factors which the court identified are: the residence of the employee, the place where the work is performed and the place where wages are paid.
The Williams case dealt specifically with the taxability of unemployment insurance benefits. However, Revenue Canada interpreted the decision to apply also to employment income, even though the Supreme Court expressly refrained from commenting on what the proper test for determining the location of employment income would be.
In a letter dated Dec.29, 1992, Revenue Canada informed Native organizations that the principal factor connecting income to a reserve would now be where the duties are carried out. As a result, an Indian’s employment income would no longer be exempt from taxation simply because their employer is based on-reserve. This new policy was to take effect this month.
To illustrate how the proposed changes could affect a Cree individual, consider the situation of a person who works for Air Creebec. Unlike the Grand Council of the Crees or the Cree School Board, Air Creebec’s main administrative office is not on Category IA or IA-N lands. So Cree employees at Air Creebec face the prospect of having to pay income tax.
This may change once the Board of Compensation, which owns Air Creebec through CreeCo., moves its head office to Ouje-Bougoumou this year.
The public relations branch of Revenue Canada claims that no final decision has been made as to whether these proposed changes will be implemented. So what consequences, if any, the Williams decision will have on taxation policy remain to be seen. Perhaps protests like the one in Toronto will be successful in making Revenue Canada rethink its position.
Joanne is a 1992 Cree graduate of the University of Ottawa law school. She recently completed her bar exams and will become a member of the Ontario Bar next month.
Kenny graduated from the University of Ottawa common law program in 1993 and is now articling with an Ottawa law firm.