On July 22nd, (I know it’s late, but I just moved!) the Supreme Court of Canada upheld appeals in favor of aboriginal interests in two important cases, Bastien Estate v. Canada and Dubé v. R. Here’s an interesting and informative (pre-decision) commentary by Katherine MacLellan on Indian Act s. 87 taxation.
In Bastien Estate, the Supreme Court ruled that Roland Bastien, (now deceased for six years) a Huron man who took out term deposits at a credit union did not have to pay tax on the interest he earned on his investment. For 27 years, Bastien ran a small handbeaded moccasin business on the Wendake Reserve (near Quebec City), where he also invested some of the income from the operation and sale of his business in term deposits with a caisse populaire (a credit union), also on his reserve. Bastien believed the income was exempt from taxation under s. 87 of the Indian Act.
However, the Canada Revenue Agency disagreed, and added the term deposit investment income to his income for 2001. His estate representatives appealed the decision but lost at both the Tax Court of Canada and the Federal Court of Appeal. Both lower courts ruled that the caisse populaire generated its revenues outside the reserve, not on it, and therefore the interest paid to Mr. Bastien was not exempt from taxation.
But the Supreme Court rejected that opinion and found that the lower courts gave too much weight to the fact that the credit union produced its revenues in the “commercial mainstream” off the reserve.
The companion case to Bastien, Dubé v. The Queen, involved Alexandre Dubé, an Attikamek aboriginal, who was also found to be exempt from tax on interest he earned on term deposits with an on-reserve credit union.
Per Cromwell J. (McLachlin C.J.C., Binnie, Fish, Charron JJ. concurring): All potentially relevant factors connected the investment income to the reserve. The taxpayer, as holder of a certificate of deposit, was not a participant in equity markets but rather was simply entitled to be paid an agreed-upon rate of interest over an agreed-upon period of time in addition to having capital returned at the end of that period. The location of the credit union and the place where the payment was made was on the reserve. The income arose from a contractual obligation which was entered into on the reserve. The source of the capital which was invested to produce the interest income was also earned on the reserve. The fact that the credit union produced its revenue in the commercial mainstream off the reserve was legally irrelevant to the nature of the income it was obliged to pay to the taxpayer. The credit union’s income-producing actions and contracts after the taxpayer invested in term deposits could not be deemed the taxpayer’s own and did not diminish any and clear connections between the taxpayer’s interest income and the reserve. The taxpayer’s investment was in the nature of a debt owed to him by the credit union and did not make him a participant in those wider commercial markets in which the credit union itself was active. The taxpayer’s investment income should have benefited from the s. 87 Indian Act exemption.
Per Deschamps J. (concurring) (Rothstein J. concurring): It was clear that all the factors — the debtor’s place of residence, the place where the contract was signed and the activity that generated the capital that made it possible to enter into the investment contract — connected the property with a reserve. There was no need to consider whether the property or the activity that generated it was connected with the traditional Aboriginal way of life. 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 was not a valid factor for determining whether personal property held by an Indian is situated on a reserve. What must be considered is the location of the activity that generated the invested capital. It could not be said significant weight should be given to connecting factors that could be easily manipulated, including the contractual aspects of the investment contract, rather than to the property’s concrete and discernible connections with the reserve. Little weight should be attached to the place where the payment is to be made given that the interest did not actually have to be paid for the property to attract tax consequences.
Turtle Talk 