Principles for Assessing Aboriginal Income and Commodity Tax in Canada

• Author: Milan Legris
• Profession: Senior Counsel
• Pages: 567-596

Chapter Twenty-One

Principles for Assessing

Aboriginal Income and

Commodity Tax in Canada

J. Milan Legris

A. INTRODUCTION

It would be the rare aboriginal person1whose affairs do not demand a

sound understanding and appreciation of the current income and com-

modity tax principles. Moreover, since the initiatives of aboriginal persons,

aboriginal-owned businesses and aboriginal communities wield increasing

economic influence in Canada, the opportunities for lawyers and other pro-

fessionals to assist in these endeavours cannot be overlooked.

The purpose of this paper is to discuss the current aboriginal income

and commodity tax principles. I will do so by examining the income tax

treatment in Canada of an aboriginal person’s employment, business and

investment income. In this examination, I will canvass both the statutory

framework and the reported tax cases to reveal the approach and principles

developed by the courts. I will then discuss and review the commodity tax

issues and cases applicable to aboriginal persons. The goal of my analysis

is to assist aboriginal persons, professional advisors and the assessing

authorities in understanding these principles. Furthermore, I suggest pos-

567

1 The term “aboriginal peoples of Canada” is defined in ss. 35(2) of the Constitution Act,

1982 as including “the Indian, Inuit and Métis peoples of Canada.”

sible amendments or clarification of the applicable statutes and case law in

this area.

B. INCOME AND COMMODITY TAX PRINCIPLES

The implications of the Constitution Act, 1867, and 1982,2the Indian Act3and

applicable treaties represent a prerequisite before examining the governing

provisions of the Income Tax Act,4the Excise Tax Act5and the case law.

1) Constitution Act, 1867

Section 91.24 gives the Parliament of Canada exclusive authority in relation

to: “Indians, and Lands reserved for the Indians.” Parliament has exercised

its authority under this section by enacting the Indian Act.

2) Indian Act

It is my intention to focus this discussion primarily on the exemption from

taxation of an “Indian”6laid out in s. 87 of the Indian Act, and give less

attention to its application to a “band.”7This analysis will reveal that the tax

exemption:

• is restricted to an Indian’s “personal property” that is “situated on a

reserve”;

• is limited to those aboriginal persons who qualify as “Indians”; and

• has been given a narrowed or restricted interpretation by the courts.

The courts have done so by developing a “connecting factors” test to deter-

mine whether income is situate on-reserve (or applying the situs test in the

case of commodity taxes). It will be shown that with respect to investment

income, the application of the “connecting factors” test has virtually elimi-

ADVOCACY AND TAXATION IN CANADA568

2Constitution Act, 1867, enacted by the Constitution Act, 1982.

3Indian Act, R.S.C. 1985, c. I-5. The appendix to the paper contains the text of the rele-

vant sections of the Indian Act.

4Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended, and hereinafter

referred to as the “ITA.”

5Excise Tax Act, R.S.C. 1985, c. E-15, as amended, and hereinafter referred to as the “ETA.”

6 I have chosen to use the term Indian in this discussion, because significant reference

in this paper is made to statutory enactments where this term continues to exist. As

unfortunate as this may be in light of modern aboriginal and Canadian societal cir-

cumstances, I recognize for the reader, aboriginal persons and all Canadians general-

ly, that the preferred term to be used or in reference thereto, would or should be;

“Native” or “Native person(s).”