T-1598-86
Glenn Williams (Plaintiff)
v.
The Queen (Defendant)
INDEXED AS: WILLIAMS V. CANADA
Trial Division, Cullen J.—Vancouver, October 6;
Ottawa, December 15, 1988.
Native peoples — Taxation — Unemployment insurance
benefits and enhanced benefits paid to Indian residing and
having worked on reserve exempt from taxation pursuant to
Indian Act ss.. 87 and 90(1)(b) — Determination of situs of
benefits.
Income tax — Exemptions — Unemployment insurance
benefits and enhanced benefits paid to Indian residing and
having worked on reserve exempt from taxation pursuant to
Indian Act ss. 87 and 90(1)(b) as benefits personal property
belonging to Indian and situated on reserve — Enhanced
benefits paid pursuant to "agreement" between Band and
Crown within s. 90(1)(b) — "Agreement" construed liberally
and in Indian's favour — Determination of situs of benefits
within Act s. 87 according to connecting factors.
Unemployment insurance — Benefits and enhanced benefits
paid to Indian residing and having worked on reserve exempt
from taxation pursuant to Indian Act ss. 87 and 90(1)(b).
The plaintiff is an Indian living on the Penticton Indian
Reserve No. 1 in British Columbia. After having worked on the
reserve, first for a company situated there, then for the Pentic-
ton Indian Band on a "NEED" project, the plaintiff qualified
for and received $3,241 in regular unemployment insurance
benefits. He then worked for twenty-five weeks, again on the
reserve, on a job creation project set up pursuant to an agree
ment between the Band and the Canada Employment and
Immigration Commission. In lieu of wages, the plaintiff
received enhanced unemployment insurance benefits worth
$7,875. The plaintiffs income tax assessment for 1984 included
all the benefits in his income pursuant to subparagraph
56(1)(a)(iv) of the Income Tax Act. The Minister dismissed
the plaintiffs objection and confirmed the assessment. This is
an appeal from that assessment.
The plaintiff invokes section 87 of the Indian Act pursuant to
which the personal property of an Indian situated on a reserve
is exempt from taxation and, with respect to the enhanced
benefits, paragraph 90(1)(b) of the same Act, pursuant to
which personal property given to Indians under an agreement
between a band and Her Majesty is deemed to be situated on a
reserve.
The main issue is whether the benefits received by the
plaintiff were "situated" on a reserve. The other issue is
whether the job creation project was an agreement within the
meaning of paragraph 90(1)(b).
Held, the appeal should be allowed.
The Nowegijick (S.C.C.) and National Indian Brotherhood
(F.C.T.D.) cases lend support to the proposition that residence
of the debtor should not be the only factor considered in
determining the situs of the benefits. In other words, the
residence of debtor criterion should be determinative of situs
only in absence of evidence that the situs should be elsewhere.
In this case, there is evidence that the situs of the benefits
should be the reserve. The place where the benefits were paid to
the plaintiff should be considered, along with the place of
employment, where the employer was situated, residence, and
place of payment of salary. The plaintiffs interpretation of the
situs test is consistent with the view that courts should deal
with native rights in a liberal and progressive manner. It would
also avoid the possible inconsistent result of an Indian taxpay
er's income earned from employment on a reserve being exempt
from tax, but the unemployment insurance benefits earned as a
result of that employment being taxable. Moreover, that inter
pretation is consistent with the intent of the Indian Act not to
tax Indians on income earned on a reserve.
The enhanced benefits are tax exempt not only by virtue of
paragraph 87(b) of the Indian Act but also by virtue of
paragraph 90(1)(b) of that Act since they were paid in accord
ance with an agreement between the Band and the Crown. The
word "agreement" in paragraph 90(1)(b) should be given a
liberal construction and any doubt resolved in favour of the
Indian.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 56(1)(a)(iv)
(as am. by S.C. 1980-81-82-83, c. 140, s. 26), (n), 81
(as am. idem, s. 46).
Indian Act, R.S.C. 1970, c. 1-6, ss. 2(1), 87 (as am. by
S.C. 1980-81-82-83, c. 47, s. 25), 90(1).
Indian Remission Order, S1/85-144.
Unemployment Insurance Act, 1971, S.C. 1970-71-72, c.
48, s. 38 (as am. by S.C. 1976-77, c. 54, s. 41; 1978-79,
c. 7, s. 6; 1980-81-82-83, c. 47, s. 53).
CASES JUDICIALLY CONSIDERED
APPLIED:
Nowegijick v. The Queen, [1983] 1 S.C.R. 29; 83 DTC
5041; R. v. National Indian Brotherhood, [1979] 1 F.C.
103; (1978), 78 DTC 6488 (T.D.); Greyeyes v. R., [1978]
2 F.C. 385; 78 DTC 6043 (T.D.).
DISTINGUISHED:
Launière v. M.N.R., [1987] 1 C.N.L.R. 55 (T.C.C.);
Mitchell v. Sandy Bay Indian Band, [1983] 5 W.W.R.
117 (Man. Q.B.).
REFERRED TO:
Metlakatla Ferry Service Ltd. v. B.C. (Govt.) (1987), 12
B.C.L.R. (2d) 308 (C.A.).
AUTHORS CITED
Punch, Don. Indians and Income Tax: A Case Comment
on Nowegijick v. The Queen, (1983-84), 48 Sask. Law
Rev. 122.
COUNSEL:
Gary S. Snarch for plaintiff.
Ian S. MacGregor and Sandra E. Phillips for
defendant.
SOLICITORS:
Snarch & Allen, Vancouver, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
CULLEN J.: The parties agreed to the following
facts:
1. The plaintiff is an Indian pursuant to the
Indian Act [R.S.C. 1970, c. I-6] and, at all ma
terial times, was a member of the Penticton Indian
Band (hereinafter referred to as the "Band"). He
resides at R.R. #2, Site 80, Comp. 10, Penticton,
British Columbia on the Penticton Indian Reserve
No. 1 (hereinafter referred to as the "reserve"),
which is a reserve within the meaning of the
Indian Act.
2. In the 1984 taxation year, the plaintiff received
regular unemployment insurance benefits from the
Canada Employment & Immigration Commission
(hereinafter referred to as the "Commission") at a
rate of $225 per week for a period commencing
January 1 and continuing for 13 weeks. The plain
tiff received a total of $2,925 during this period.
3. The plaintiff qualified to receive the regular
unemployment insurance benefits referred to in
paragraph 2 hereof on the basis of his having been
employed in insurable employment with Green-
wood Forest Products Ltd., a company situated on
the reserve, during 1982 and 1983.
4. The plaintiff was employed by the Band on a
"NEED" project on the reserve for the period from
March 23, 1984 to June 1, 1984. During this
period he received wages in the amount of $2,995
from the Band.
5. The plaintiff applied for unemployment insur
ance benefits on June 7, 1984 and on June 17,
1984 began to receive regular unemployment in
surance benefits at a rate of $158 per week for two
weeks for a total of $316.
6. The Band entered into an agreement dated
March 28, 1984 with the Commission whereby it
was agreed that a job creation project (No.
7320BX8) within the meaning of section 38 of the
Unemployment Insurance Act, 1971 [S.C. 1970-
71-72, c. 48 (as am. by S.C. 1976-77, c. 54, s.
41)], would be carried out on the reserve.
7. The said job creation project was a Forest
Improvement Project and ran from on or about
March 30, 1984 to on or about December 21,
1984.
8. The agreement referred to in paragraph 6
hereof provided that the Commission contribute
$95,000 to the cost of the project which amount
was payable directly to the Band. Subsequently, an
amount of $94,500 was paid to the Band, as
follows:
5 April 1984 advance payment $29,250
8 August 1984 interim payment 24,750
10 September 1984 interim payment 5,500
22 November 1984 interim payment 26,000
28 February 1985 final payment 9,000
TOTAL $94,500
9. As he was an unemployment insurance claim
ant the plaintiff was eligible to work on the job
creation project referred to in paragraphs 6, 7 and
8 hereof.
10. The plaintiff worked on the said job creation
project for 25 weeks between July 2, 1984 and
December 21, 1984 and, as a result thereof, his
unemployment insurance benefits were enhanced
by the Commission from $158 to $315 pursuant to
section 38 of the Unemployment Insurance Act,
1971. The total amount received by the plaintiff
was $7,875.
11. The plaintiff and all other participants in the
project were required to sign a Model Undertaking
by Benefit Recipient—Participant form which
states, inter alia, the following:
2. That during my participation in this project, I accept instead
of wages the benefits payable to me as determined under the
Unemployment Insurance Act, 1971 and the Unemployment
Insurance Regulations.
The plaintiff signed the Model Undertaking on
July 4, 1984.
12. All of the unemployment insurance benefits
referred to in paragraphs 2, 5 and 10 hereof were
paid by federal government cheques made payable
to the plaintiff and mailed from the Commission's
regional computer centre in Vancouver, British
Columbia to the plaintiff, c/o Penticton Indian
Band, R.R. #2, Site 50, Comp. 8, Penticton, B.C.,
V2A 6J7.
13. In addition to receiving unemployment insur
ance benefits for his work on the job creation
project the Band paid to the plaintiff an additional
$60 per week as top-up wages for a total of $1,560
including 4% holiday pay.
14. The said top-up wages were paid directly to
the plaintiff by the Band out of the $94,500 con
tributed to the Band by the Commission in respect
of the cost of the project.
15. The plaintiff received a T4-U, Statement of
Unemployment Insurance Benefits Paid, from the
Commission in the amount of $11,116 computed
as follows:
$ 2,925 — see paragraph 2
316 — see paragraph 5
7,875 — see paragraph 10
$11,116 — TOTAL
16. By Notice of Assessment dated May 31, 1985,
the plaintiff was assessed by the Minister of Na
tional Revenue so as to include in his income for
the 1984 taxation year the amount of $11,116
pursuant to the provisions of subparagraph
56(1)(a)(iv) [as am. by S.C. 1980-81-82-83, c.
140, s. 26] of the Income Tax Act, R.S.C. 1952, c.
148, as amended by S.C. 1970-71-72, c. 63, s. 1
(hereinafter referred to as the "Act").
17. By Notice of Objection dated August 29,
1985, the plaintiff objected to the said assessment
of his 1984 taxation year.
18. By Notification of Confirmation by the Minis
ter of National Revenue dated April 16, 1986, the
assessment referred to in paragraph 16 herein was
confirmed.
This is an appeal from the assessment referred
to in paragraph 16 herein.
Subparagraph 56(1)(a)(iv) of the Act specifi
cally provides for the inclusion of unemployment
insurance benefits in computing a taxpayer's
income for a taxation year:
56. (1) Without restricting the generality of section 3, there
shall be included in computing the income of a taxpayer for a
taxation year,
(a) any amount received by the taxpayer in the year as, on
account or in lieu of payment of, or in satisfaction of,
(iv) a benefit under the Unemployment Insurance Act,
1971,
However, section 81 [as am. by S.C. 1980-81-82-
83, c. 140, s. 46] of the Act clearly states that:
81. (1) There shall not be included in computing the income
of a taxpayer for a taxation year,
(a) an anount that is declared to be exempt from income tax
by any other enactment of the Parliament of Canada, other
than an amount received or receivable by an individual that
is exempt by virtue of a provision contained in a tax conven
tion or agreement with another country that has the force of
law in Canada;
The exemption referred to above must be
statutory.
The exemption to which an Indian, within the
meaning of subsection 2(1) of the Indian Act, is
entitled arises from section 87 of this Act. In
essence, section 87 [as am. by S.C. 1980-81-82-83,
c. 47, s. 25] provides that personal property of an
Indian situated on a reserve is exempt from taxa
tion and that no Indian is subject to taxation "in
`respect of' 'any"' such property: Nowegijick v.
The Queen, [1983] 1 S.C.R. 29, at page 33; 83
DTC 5041, at page 5043. Section 87 and subsec
tion 90(1) of the Act are set out below:
87. Notwithstanding any other Act of the Parliament of
Canada or any Act of the legislature of a province, but subject
to section 83, the following property is exempt from taxation,
namely:
(a) the interest of an Indian or a band in reserve or surren
dered lands; and
(b) the personal property of an Indian or band situated on a
reserve;
and no Indian or band is subject to taxation in respect of the
ownership, occupation, possession or use of any property men
tioned in paragraph (a) or (b) or is otherwise subject to
taxation in respect of any such property; and no succession
duty, inheritance tax or estate duty is payable on the death of
any Indian in respect of any such property or the succession
thereto if the property passes to an Indian, nor shall any such
property be taken into account in determining the duty payable
under the Dominion Succession Duty Act, being chapter 89 of
the Revised Statutes of Canada, 1952, or the tax payable under
the Estate Tax Act, on or in respect of other property passing
to an Indian.
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 agree
ment between a band and Her Majesty,
shall be deemed always to be situated on a reserve.
The relevant portion of subsection 90(1) for this
appeal is paragraph 90(1)(b).
The other piece of legislation which has some
bearing on the issue before me is section 38 of the
Unemployment Insurance Act, 1971. Section 38
provides in part:
38. (1) For the purposes of this section, a job creation
project means a project that is approved by the Commission for
the purposes of this section under a program designed primarily
to create employment and conducted by the Government of
Canada pursuant to any Act of Parliament.
(2) Benefit otherwise payable under this Part to a claimant
who takes employment on a job creation project may, at the
discretion of the Commission and subject to subsection (10), be
paid in the manner prescribed.
(3) For the purposes of this Part, a week during which the
claimant is employed on a job creation project and is paid
benefit under subsection (2) shall be deemed to be a week of
unemployment and for the purposes of this Part, Part IV, the
Income Tax Act and the Canada Pension Plan, any benefit
paid to a claimant under subsection (2) shall be deemed not to
be remuneration from employment.
(4) Notwithstanding section 24, the rate of weekly benefit
payable to a claimant employed on a job creation project shall
be an amount not exceeding the greater of the rate payable
under section 24 and the wage rate applicable to employment
on that project, as determined by the Commission.
(10) No amount may be paid in any year as benefit under
this section in excess of an amount authorized by order of the
Governor in Council to be so paid in that year.
(1 I) No decision of the Commission approving or disapprov
ing any job creation project for the purposes of this section is
subject to appeal under section 94 or 95. [Emphasis added.]
The issue to be determined is whether the unem
ployment insurance benefits (the benefits) the
plaintiff received during the first, second and third
periods are exempt from taxation, pursuant to
section 87 of the Indian Act. As I indicated earlier,
in order to qualify for the exemption in section 87
of the Indian Act, the benefits must be personal
property, must belong to the Indian or band and
must be situated on a reserve. In the case at hand,
there is no dispute that the benefits are personal
property and that the benefits belong to an Indian,
within the meaning of the Indian Act. The only
question that must be dealt with is whether the
benefits received by the plaintiff during all three
periods were "situated" on a reserve.
Counsel for the plaintiff maintains that the
plaintiff, at all material times resided on the
reserve, worked on the reserve for an employer
situated on the reserve (Greenwood Forest Prod
ucts Ltd. and the Band) and was paid on the
reserve. Moreover, the plaintiff was paid benefits
on the reserve during the first, second and third
periods as a result of the above employment.
During the third period, in addition to receiving
regular unemployment benefits, the plaintiffs ben
efits were enhanced as he continued to work on the
reserve during the receipt of these benefits. Agree
ments were entered into between the Commission,
the Band and the plaintiff identifying the Band as
the plaintiff's employer.
The plaintiff submits that to properly apply the
situs test in Nowegijick v. The Queen (supra), one
does not merely determine the residence of the
debtor. Instead, all the connecting factors should
be used to determine situs. As I understood the
plaintiff's argument, he maintains that the test to
be used in attributing a situs to salary, according
to Nowegijick (supra) and R. v. National Indian
Brotherhood, [1979] 1 F.C. 103; (1978), 78 DTC
6488 (T.D.), requires more than the determination
of the residence of the debtor (employer) and the
place where the wages are payable. The residence
of the debtor criterion is determinative of situs
only where there is no evidence to indicate that the
situs should be elsewhere. In this case, there are a
number of factors which can be used to determine
situs, and taken collectively, these factors indicate
that the situs of the benefits is on the reserve.
In this regard, the plaintiff alleges that the
benefits are delayed remuneration and were
earned as a direct result of the employment per
formed on the reserve. The plaintiff at all material
times resided on the reserve, and was paid salary
and benefits on the reserve. With respect to the
benefits earned during the third period, the plain
tiff argues that these benefits are deemed to be
situated on a reserve, by virtue of paragraph
90(1)(b) of the Indian Act as these moneys were
provided through the Band to the plaintiff pursu
ant to an agreement with the Commission:
Greyeyes v. R., [1978] 2 F.C. 385; 78 DTC 6043
(T.D.).
The defendant's position is that the combined
effect of paragraph 81(1)(a) of the Income Tax
Act and of paragraphs 87(b) and 90(1)(b) of the
Indian Act does not exempt the plaintiff from
taxation in respect of the regular unemployment
insurance benefits and enhanced unemployment
insurance benefits. The defendant argues that
paragraph 87(b) of the Indian Act only exempts
from taxation the personal property of an Indian
situated on a reserve and that based in the situs
test in Nowegijick and National Indian Brother
hood, the situs of the benefits is at the residence of
the payer, namely in Ottawa. Therefore, the ben
efits do not fall within the section 87 exemption.
The defendant also submits that the location at
which the benefits are received is irrelevant to the
determination of their situs and that a determina
tion of where the personal property is situated does
not direct one to look at where the services were
performed. The case law indicates that the fact
that services were performed on a reserve is not
determinative of situs.
It is the defendant's further contention that
paragraph 90(1)(b) of the Indian Act does not
deem the enhanced benefits received by the plain
tiff for his work on the job creation project to be
"situated on a reserve" as those benefits were paid,
to the plaintiff in accordance with and pursuant to,
the provisions of the Unemployment Insurance
Act, 1971 and were not "given to the plaintiff
under an agreement between a band and Her
Majesty".
The leading case dealing with the interpretation
of section 87 of the Indian Act is the Nowegijick
case (supra). Dickson J., as he then was, writing
for the Court concluded that section 87 created an
exemption from tax for both persons and property.
Accordingly, it did not matter that the taxation of
employment income may be characterized as a tax
on a person as opposed to a tax on property. In
Nowegijick the taxpayer was a status Indian living
on a reserve. He worked off the reserve as a logger
for a corporation which had its head office and
administrative offices on the reserve. The taxpayer
was paid his wages at the head office on the
reserve. Therefore the only factor which indicated
an off reserve presence was where the taxpayer
actually performed his work.
As pointed out by counsel for the plantiff, the
question of situs was not directly at issue in
Nowegijick as the parties agreed that the income
was situated on the reserve. Nevertheless, the
Supreme Court of Canada did comment on the
question of situs and approved Thurlow A.C.J.'s
criterion for situs as enunciated in National
Indian Brotherhood, at pages 109 F.C.; 6491
DTC:
A chose in action such as the right to a salary in fact has no
situs. But where for some purpose the law has found it neces
sary to attribute a situs, in the absence of anything in the
contract or elsewhere to indicate the contrary, the situs of a
simple contract debt has been held to be the residence or place
where the debtor is found. See Cheshire, Private International
Law, seventh edition, pp. 420 et seg.
The plaintiff has argued that this test has limited
application and what Thurlow A.C.J. was really
saying was that since a right to a salary has no
situs, the law will attribute situs to the residence
of the employer (debtor) only as a last resort and
where no other evidence is present to indicate that
the situs should be attributed elsewhere. With
respect, I do not agree with this interpretation.
The rationale for choosing the residence of the
debtor as the test for choosing the situs of the debt
was, as Thurlow A.C.J. pointed out, based on the
fact that this was where the debt could be enforced
or collected.
The plaintiff has also argued that the test to be
used in attributing situs to salary, according to
Nowegijick and National Indian Brotherhood
requires more than the determination of the resi
dence of the debtor (employer) and the place
where the wages are payable. The plaintiff's posi
tion is that the residence of the debtor criterion is
determinative of situs only where there is no evi
dence to indicate that the situs should be else
where. (I must admit I tend to accept this modi
fied interpretation more.) To support this position
reference was made to Thurlow A.C.J.'s words at
pages 109 F.C.; 6491 DTC: "in the absence of
anything in the contract or elsewhere to indicate
the contrary." In this case, there are a number of
connecting factors, that when considered in total,
indicate that the situs of the benefits is the reserve.
The plaintiff has referred to the following as rele
vant factors: 1) benefits are delayed remuneration
and were earned as a direct result of the employ
ment performed by the plaintiff on the reserve for
an employer situated on the reserve; 2) the plain
tiff at all material times resided on the reserve and
was paid salary and benefits on the reserve. (I will
deal with these factors later in my reasons.)
Moreover, the facts of the Nowegijick case and
the National Indian Brotherhood; case lend sup
port to the plaintiff's interpretation of the situs
test. In National Indian Brotherhood all the con
necting factors pointed to the situs of the income
as being off the reserve. In that case, the
employees were living off the reserve, they worked
off and on the reserve and were paid off the
reserve. However, in Nowegijick the majority of
the connecting factors pointed to the reserve as the
situs of the income. In that case, the employee was
living on the reserve, he was paid on the reserve
and worked off the reserve. His employer was also
on the reserve.
There is also an argument to be made that the
residence of the employer is not the only factor to
be considered in determining situs of income. The
Supreme Court of Canada found in Nowegijick
[at pages 34 S.C.R.; 5043 DTC] that the taxpay
er's income was situated 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."
Therefore, the place of payment of wages may also
be a factor to be considered when dealing with the
question of situs. On the other hand, there is also
the Court's approval of Thurlow A.C.J.'s judg
ment in National Indian Brotherhood where only
the residence of the employer was looked at when
determining situs. However, as I indicated earlier,
all the factors also pointed to the situs of the
income being off the reserve, so there was no
choice but to find the situs of the income to be off
the reserve.
I lean towards the plaintiff's interpretation of
the situs test. To me, it is consistent with the view
that courts should deal with native rights cases in a
liberal and progressive manner and in this regard,
I quote Dickson J. in Nowegijick, at pages 36
S.C.R.; 5044 DTC:
It is legal lore that, to be valid, exemptions to tax laws should
be clearly expressed. It seems to me, however, that treaties and
statutes relating to Indians should be liberally construed and
doubtful expressions resolved in favour of the Indians. If the
statute contains language which can reasonably be construed to
confer tax exemption that construction, in my view, is to be
favoured over a more technical construction which might be
available to deny exemption. In Jones v. Meehan, 175 U.S. 1,
(1896) it was held that Indian treaties "must ... be construed,
not according to the technical meaning of [their] words ... but
in the sense in which they would naturally be understood by the
Indians".
(See also Metlakatla Ferry Service Ltd. v. B.C.
(Govt.) (1987), 12 B.C.L.R. (2d) 308 (C.A.) at
page 312.)
The defendant has made a strong argument that
the benefits are not situated on the reserve based
on the test contained in National Indian Brother
hood and approved by the Supreme Court of
Canada in Nowegijick. The test used to attribute
situs to a salary is to determine the residence or
place of the debtor and the place where the wages
are payable. In this case, although there is no
contractual debt, there is what can be considered
or characterized as a statutory debt, with the
debtor being the Commission, as the Commission
is charged with the administration of the Unem
ployment Insurance Act, 1971. As such, the resi
dence of the debtor is either Ottawa, the head
office of the Commission, or Vancouver, the
regional office from which the cheques were
issued, but not the reserve.
In this regard, counsel for the defendant cited
the decision of the Tax Court of Canada Launière
v. M.N.R., [1987] 1 C.N.L.R. 55. The issue to be
determined in that case was also whether unem
ployment insurance benefits received by Mr. Lau-
nière were taxable. Mr. Launière is an Indian
within the meaning of the Indian Act and worked
on the reserve. The Tax Court of Canada found
[at page 55]:
There was no doubt about the fact that the unemployment
insurance benefits came from the Commission whose head
office was in Ottawa nor that it was the payer of the benefits
received by the appellant. In such circumstances, the Court
cannot resort to a more liberal interpretation and must apply
the clear and precise provisions of s. 87(b) of the Indian Act.
With respect, I do not think that the Tax Court's
conclusion can be applied out of hand to the case
before me. The same arguments were not before
the Tax Court. Essentially, what was argued
before the Tax Court was that the nature of the
unemployment insurance program is related to the
appellant's employment and income, to the unem
ployment insurance benefits that the appellant
received as well as to the unemployment insurance
premiums that he paid. The conclusion from this
was that the benefits related to a contract of
employment in this manner must, like his salary,
be considered personal property and exempt from
tax under paragraph 87(b) of the Indian Act. This
was not the type of argument that was before me.
The plaintiff merely used the characterization of
the benefits (relative to employment) as only one
of the factors to be considered but it was not
determinative nor was it the sole basis of his
argument. Further, in Launière, there was never
any question that the benefits were paid pursuant
to an agreement or treaty between the band and
Her Majesty. The plaintiff has also indicated that
the Tax Court in Launière was wrong in not
considering factors such as the fact that the plain
tiff (taxpayer) at all material times resided on the
reserve and was paid salary and benefits on the
reserve.
Counsel for the defendant also cited the case of
Mitchell v. Sandy Bay Indian Band, [1983] 5
W.W.R. 117 (Man. Q.B.) In that case, the Court's
main concern was the effect of section 90 of the
Indian Act and its observations on the situs test
were at best obiter. As such I do not have to apply
them.
My one concern about the plaintiffs argument
is his characterization of the unemployment insur
ance benefits. The plaintiff has indicated that at
all material times he resided on the reserve,
worked on the reserve for an employer situated on
a reserve (Greenwood Forest Products Ltd. and
the Band) and was paid on the reserve. In addi
tion, the plaintiff was paid benefits on the reserve
during the first, second and third periods as a
result of the above-mentioned employment. I agree
with the plaintiff's contention to the extent that in
order to be eligible for benefits a person is required
to have a certain number of weeks of insurable
employment. However, a contract of unemploy
ment insurance is not analogous to any insurance
contract. The plaintiff, as an employee, paid pre
miums to the unemployment insurance fund, as
did his employer, but it does not follow that the
unemployment insurance benefits are delayed
remuneration from the plaintiffs previous employ
ment. The unemployment insurance scheme is a
social insurance program designed to insure an
employee against the contingency of involuntary
unemployment. The scheme is financed from three
sources: the employee, the employer and the feder
al general revenue. However, I do think that the
place where the benefits are paid to the plaintiff
should be a consideration when assessing situs of
the benefits, based on Dickson J.'s comment in
Nowegijick, at pages 34 S.C.R.; 5043 DTC and
Don Purich's article, "Indians and Income Tax: A
Case Comment on Nowegijick v. The Queen"
(1983-84), 48 Sask. Law Rev. 122. In the case
before me the plaintiff received his benefits on the
reserve. The benefits were payable and paid direct
ly to the taxpayer. I do not think that this neces
sarily means that virtually any type of payment, if
directed to the reserve, would avoid the payment of
tax. This is only a factor to be considered and it is
not necessarily determinative.
As I indicated earlier, I tend to favour the
interpretation of the situs test espoused by the
plaintiff. The issue before the Supreme Court of
Canada in Nowegijick dealt with the characteriza
tion of personal property. The situs of income was
not at issue, as the parties agreed on the situs and
merely commented on by the Court. Further, such
an interpretation would avoid the possible incon
sistent result of a taxpayer's (who is a status
Indian) income earned from employment on the
reserve being exempt from tax, but the unemploy
ment insurance benefits earned as a result of that
employment being taxable.
Moreover, the plaintiffs interpretation is con
sistent with the intent of the Indian Act not to tax
Indians on income earned on a reserve. Although
this statement of intent is based on a statement
contained in Interpretation Tax Bulletin 62, dated
August 18, 1972 and is not binding, it should be
given weight and considered to be a factor in cases
of doubt arising out of the meaning of legislation.
(Dickson J. in Nowegijick, at pages 37 S.C.R.;
5044 DTC, quoting de Grandpré J.) Also, the
interpretation does not necessarily mean that no
Indian shall ever pay tax of any kind, per Dickson
J., at pages 41 S.C.R.; 5046 DTC.
The enhanced benefits are exempt from tax by
virtue of paragraphs 87(b) and 90(1)(b) of the
Indian Act. I agree with the plaintiff's argument
that paragraph 90(1)(b) is applicable to the case
at hand because the enhanced benefits received by
the plaintiff were paid not only in accordance with
the provisions of the Unemployment Insurance
Act, 1971, but were paid in accordance with an
agreement between the Band and Her Majesty.
Section 38 of the Unemployment Insurance Act,
1971 provides that benefits may be paid to a
claimant who takes employment on a job creation
project approved by the Commission. This section
does not in itself create the job creation project,
the Act presupposes the existence of such projects
pursuant to an agreement. Therefore, the project
which enabled the plaintiff to qualify for benefits
was created by an agreement. As the agreement is
between a band and Her Majesty, I conclude that
this is an agreement within the meaning of para
graph 90(1)(b) of the Indian Act and therefore the
benefits are exempt.
A similar argument was made and accepted by
Mahoney J. in Greyeyes v. R. (supra). In that case
the issue was whether scholarship funds ordinarily
taxable under paragraph 56(1)(n) of the Income
Tax Act were exempt from tax under the Indian
Act. The Court found that monies received by an
Indian, pursuant to a Department of Indian
Affairs and Northern Development program
designed to assist the taxpayer in question with her
post-secondary education, were not taxable by
virtue of sections 87 and 90(1)(b) of the Indian
Act. Mahoney J. noted at pages 388 F.C.; 6045
DTC that on a plain meaning, section 87 made
three provisions vis-Ã -vis the personal property of
an Indian situated on a reserve:
Firstly, "the following property is exempt from taxation, name
ly"; the scholarship. Secondly, "no Indian ... is subject to
taxation in respect of the ownership, occupation, possession or
use of the scholarship. Thirdly, "no Indian ... is otherwise
subject to taxation in respect of" the scholarship.
He found that the third provision, namely that no
Indian is otherwise subject to taxation in respect of
the scholarship, applied. Mahoney J. continued
with his analysis, at pages 389-390 F.C.; 6046
DTC:
The remaining provision of section 87 is that the plaintiff is
not "otherwise subject to taxation in respect of the scholar
ship. Does the inclusion of the amount of the scholarship (less
$500) in the calculation of her taxable income upon which an
income tax is assessed and levied result in her being subject to
taxation in respect of the scholarship? In my opinion, it does.
The tax payable by the plaintiff under the Income Tax Act is
determined by the application of a prescribed rate to her
taxable income. The higher her taxable income, the greater her
income tax. The amount by which the plaintiffs scholarship
exceeded $500 was added to her taxable income. As a result her
taxable income was $1,839.50 more than it would otherwise
have been and, it follows, she was assessed more income tax
than if it had not been so added. I do not see how, having
regard to ordinary English usage, I can come to any conclusion
but that she was thereby made subject to taxation in respect of
the scholarship.
He concluded by saying that, "Section 87 of the
Indian Act, by its own terms, prevails over any
contrary intention expressed in the Income Tax
Act." I adopt Mahoney J.'s reasoning to further
support the conclusion that the enhanced benefits
were exempt from tax by virtue of sections 87 and
90(1) (b) of the Indian Act. Moreover, it is clear
that the word agreement in paragraph 90(1)(b) of
the Indian Act should also be given a liberal
construction and any doubt resolved in favour of
the Indian, per Morse J. in Mitchell v. Sandy Bay
Indian Band, (supra), at page 127.
Based on the above reasoning, I would allow the
plaintiff's appeal, with costs to the plaintiff.
Since I have found for the plaintiff, I do not feel
it is necessary to deal with alternative argument on
Indian Remission Order, SI/85-144 dated August
21, 1985.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.