The Tax Court of Canada recently released Hester v. The Queen, which addressed the issue of tax exemptions for Aboriginals working off the reserve for an employer located on a reserve. The two Aboriginal appellants (Joseph Hester and Mildred Bondy) argued that:
(1) in interpreting the phrase “situated on a reserve” in subsection 87(1) of the Indian Act, employment income is situate where the employer is located.
(2) the “connecting factor” analysis (as laid out in Williams v. The Queen, [1992] 1 S.C.R. 877) was intended to have limited analysis and does not apply to employment income.
Justice Woods held that:
(1) the situs of the employment income is not the location of the employer.
(2) The Williams “connecting factor test” does apply to employment income.
[14] I would first comment that the approval of the location of the employer test in Nowegijick was obiter and was only given a passing comment in the decision. The reasons of Dickson J. make it clear that this was not the issue in the case: […] 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.[…][…] In R. v. The National Indian Brotherhood (1978), 78 DTC 6488 the question was as to situs, an issue which does not arise in the present case. (pp. 5043, 5044)[15] In any event, it is clear from the [*11] subsequent Williams decision that the connecting factors test should be applied to employment income
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