on appeal from the federal court of appeal
Aboriginal law — Taxation —Exemptions — Interest income — Status Indian living on reserve investing income in term deposits with caisse populaire on same reserve — Interest income earned on term deposits paid and deposited in savings account — Whether interest income exempt from income taxation as personal property “situated on a reserve” — Connecting factors approach to determining location of intangible personal property — Whether caisse’s economic activity in “commercial mainstream” off reserve is potentially relevant factor — Indian Act, R.S.C. 1985, c. I‑5,s. 87(1)(b).
Taxation — Income tax —Exemptions — Income from property — Interest income earned on term deposits deposited in status Indian’s savings account on reserve — Whether interest income exempt from tax as “personal property of an Indian situated on a reserve” — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.),s. 3, 9 — Indian Act, R.S.C. 1985, c. I‑5, s. 87(1)(b).
B was a status Indian who belonged to the Huron‑Wendat Nation. He was born and died on the Wendake Reserve near Quebec City. From 1970 until 1997, B operated a moccasin manufacturing business on that reserve. He invested some of the income from the operation and sale of his business in term deposits with the Caisse populaire Desjardins du Village Huron. The Caisse has since its founding had its head office, its only place of business and its sole fixed asset on the Wendake Reserve. In 2001, the certificates of deposit paid interest that was deposited in B’s transaction savings account at the Caisse. B considered this income to be property exempt from taxation under the Indian Act. However, in 2003, the Minister of National Revenue made an assessment in which he added the investment income to B’s income for the 2001 taxation year. The assessment was confirmed and B’s estate appealed unsuccessfully to the Tax Court of Canada and the Federal Court of Appeal. Both courts held that the Caisse generated its revenues in the “economic mainstream”, not on the reserve, and therefore that the interest it paid to B was not situated on the reserve.
Held: The appeal should be allowed.
Per McLachlin C.J. and Binnie, Fish, Charron and Cromwell JJ.: The phrase “on a reserve” ins. 87 of the Indian Act should be interpreted having regard to the substance and the plain and ordinary meaning of the language used. Where, because of its nature or the type of exemption in question, the location of property is not objectively easy to determine, the connecting factors approach set out in Williams v. Canada, 1992 CanLII 98 (SCC), [1992] 1 S.C.R. 877, must be applied: First, the court identifies potentially relevant factors connecting the intangible personal property to a location. Second, the court analyses these factors purposively in order to assess what weight should be given to them. This analysis considers the purpose of the exemption under the Indian Act, the type of property in question and the nature of the taxation of that property. The Williams approach applies here, since the location of a transaction — the payment of interest pursuant to a contract — for the purposes of taxation has to be determined.
The purpose of the tax exemption is to preserve Indian property on a reserve. While the relationship between the property and life on the reserve may in some cases be a factor tending to strengthen or weaken the connection between the property and the reserve, the availability of the exemption does not depend on whether the property is integral to the life of the reserve or to the preservation of the traditional Indian way of life. The property in issue here is investment income derived from term deposits, which are a basic investment vehicle evidenced by a certificate of deposit. The investor, as the holder of a certificate of deposit, is not a participant in the equity markets but rather is simply entitled to be paid the agreed‑upon rate of interest over the agreed‑upon period of time in addition to having the capital returned at the end of that period. This investment income is personal property for the purposes ofs. 87 of the Indian Act. The contract provides for a right to a sum of money payable under certain conditions. But for the tax exemption, B’s interest income earned from term deposits would be income from property to be added to his yearly income pursuant to ss. 3, 9 and 12(1)(c) of theIncome Tax Act.
The relevant connecting factors identified in Williams include: the residence of the debtor, the residence of the person receiving the benefits, the place the benefits are paid, and the location of the employment income which gave rise to the qualification for benefits. General legal rules about the location of property are relevant for the purposes of the Indian Act. Thus, provisions and jurisprudence relating to the location of income may prove helpful in deciding whether income is located on a reserve. While these rules cannot be imported from one context into another without due consideration, they ought to be considered and given appropriate weight in light of the purpose of the exemption, the type of property and the nature of the taxation in issue.
