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Last updated: October 11 2012
Importance of business location for First Nations tax exemption claims
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A July Tax Court of Canada decision clarified the importance of the location of a business for the purpose of tax exemption.
A July Tax Court of Canada decision clarified the importance of the location of a business for the purpose of First Nations tax exemption claims.
In the case of Dickie v The Queen, an aboriginal taxpayer from the Fort Nelson Indian Reserve appealed a reassessment on the grounds that, though the activity of the business occurred off the reserve, the business was located on the reserve, and thus exempt under the Indian Act. The appellant was successful and the reassessment was vacated.
The appellant's business involved cutting and slashing timber and brush for oil and gas companies carrying out seismic testing. The physical activity entailed was done almost exclusively off of the Reserve, although generally within an 80-kilometer radius, however, the business itself was located on the Reserve, where the appellant conducted administration, hiring and training. The appellant testified that in the year in issue, 2003, he employed 105 aboriginals from reserves all over the nation and another 35 non-aboriginal workers. Most of their clients were based in Calgary. The appellant claimed that his income was exempt for taxation by virtue of paragraph 81(1)(a) of the Income Tax Act (the Act).
Two recent decisions from the Supreme Court of Canada (SCC)—Bastien Estate v Canada (2011) and Dube v Canada (2011) have modified how the aforementioned section is to be construed. Traditionally, the courts construed the exemption for aboriginals narrowly, emphasizing a physical connection to the reserve and a general reluctance to apply it to activities taking place in the "commercial mainstream”. However this notion of the commercial mainstream has been eroded.
In Bastien Estate, Cromwell J stated at paragraph 28 that:
"While the relationship between 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…”
This comment evolved from remarks by Linden J.A. in a 1997 Federal Court of Appeal case called Folster in which he observed that the use of the term "commercial mainstream” might "imply, incorrectly, that trade and commerce is somehow foreign to First Nations”.
In the end, the appellant received 60% of his out of pocket costs and all of the disbursements claimed. Although the specific facts of this case seldom arise, the application of Rule 147(h)(the denial or the neglect or refusal of any party to admit anything that should have been admitted) by Justice Pizzitelli may set a precedent for judges to keep a more critical eye on the CRA and their dealings with taxpayers throughout the appeals process. In concluding remarks he stated: "In my opinion, the Respondent paid lip service to the Supreme Court of Canada’s decisions on the importance of the commercial mainstream argument yet proceeded to trial on the basis it was one of its strongest arguments.”
