The Tax Exemption: Another Nail in the Commercial Mainstream's Coffin.

In a recent decision (that I was involved in together with Sarah Hansen of Miller Thomson LLP) the Tax Court again had an opportunity to look at the future of the commercial mainstream test in the post-Bastien/Dube landscape.  The decision of Justice Pizzitelli in Dickie v. The Queen 2012 TCC 242 confirms the view held by many that after the Supreme Court of Canada's recent decisions in Bastien and Dube there is little significance to the concept of the "commercial mainstream" as a limit on the application of the tax exemption contained in s. 87 of the Indian Act.  This case is interesting because of its application of the principles from the recent Supreme Court of Canada jurisprudence to the context of business income.

Mr. Dickie ran a business from the Fort Nelson First Nation reserve.  Mr. Dickie through a sole proprietorship known as Deer River Holdings bid on brush clearing contracts offered by companies in the oil and gas industry operating in the vicinity of Fort Nelson.  Mr. Dickie (together with his wife) would undertake pre-bidding qualification work, prepare bids, make bids and assemble and train crews to perform the work once bids were obtained.  The work crews were drawn from a very wide area and the work (for the most part) was done off reserve.  Invoices were sent out to customers from the reserve and payment was made by cheque to the reserve or by wire transfer to a local bank.  What is noteworthy about Mr. Dickie's role in the operation is that he carried out all of his functions exclusively from his on-reserve base.  He himself did not participate directly in the cutting of trees or clearing of brush off-reserve.

The Canadian Revenue Agency re-assessed Mr. Dickie and held that his income from the business of Deer River Holdings was earned off reserve and not eligible for the s. 87 exemption because the physical activity that led to the generation of the gross revenue was carried out off-reserve and because the business competed in the commercial mainstream.  Mr. Dickie argued that the exemption applied because the management functions he carried out were carried out entirely on-reserve and because the off-reserve activities were carried out in the traditional territory of the Fort Nelson First Nation they were not truly in the commercial mainstream.  M. Dickie also argued (on appeal) that the commercial mainstream test had no significant role in this case in any event.

Justice Pizzitelli held that both sides took an overly black and white position and instead applied a balanced analysis which ultimately found that there were significant connecting factors establishing the reserve as the situs of the business.  This particularly flowed from the "nomadic" nature of the physical labour which meant that the management and other such functions were necessarily disconnected from the location of the labour) and the fact that the administrative and business functions were not merely incidental but involved significant effort on the part of Mr. Dickie.  As Justice Pizzitelli found they were "an essential and significant part of its business operations."  Justice Pizzitelli rejected Mr. Dickie's reliance on the fact that the operations were carried on in the Fort Nelson First Nation Traditional Territory on the basis that this area was just too large and the connection to the work too tenuous to provide a connection to the reserve that could weigh in favour of the taxpayer.

What is most interesting about the judgment is how Justice Pizzitelli approaches the issue of the "commercial mainstream."  He characterized CRA's approach to this issue as being one of asking whether or not the business in question was "Indian enough" and held that this was a wholly irrelevant factor.  In the end the question to be addressed had to be "is this income situated on reserve?" even if to allow the exemption to apply in such circumstances would give the aboriginal people a business edge.  Here is what the court said:

[66]        Having regard to the above, it is my view that the term “commercial mainstream” is now a misnomer. Competition with non-aboriginals is the more accurate category that describes the real reason for the existence of the factor. Clearly, categorizing it as suggesting it must describe the “non-Indianness” of the activity, as demonstrated by the earlier examples, are clearly inappropriate. However, as counsel for the Appellant pointed out, the Supreme Court of Canada also recognized, in the continuation of the quote utilized by the Respondent’s counsel in its argument above from Cromwell J. in Bastien Estate, that while La Forest J. in Mitchell noted that the purpose of the legislation is not to permit Indians to “acquire, hold and deal with property in the commercial mainstream on different terms than their fellow citizens,” it was clear that, “even if an Indian acquired an asset through a purely commercial business agreement with a private concern, the exemption would nonetheless apply if the asset were situated on the reserve. … it must be remembered that the protections of ss.87 and 89 will always apply to property situated on a reserve.”

[67]        It is thus clear to me that, whether the aboriginal competes with non‑aboriginals or not, the question of competition per se, or the “commercial mainstream” which I feel are one and the same, is irrelevant. The question is whether the property is situated on the Reserve and this had nothing to do with whether the same property can be owned by non-aboriginals and exist off reserve. In my view, any consideration of this “commercial mainstream” or “competition with non-aboriginals” factor is irrelevant to the determination of whether the Appellant’s business income is situated on the Reserve and I assign no weight to it. It may be an aid in defining the nature of a business and the location of its business activities above, but no presumptive weight can be given to it in the manner it has been utilized in the past.

[68]        Moreover, it must be emphasized that just because a finding that a property is situated on a Reserve may lead to a competitive advantage given an Indian over a non-Indian does not give reason to negate the finding it is situated on a Reserve. Any advantage such finding may render is in my view the exact advantage that was contemplated by section 87 of the Act.

This is a welcome decision.  It sends a message that the Indian Act does not have to be approached as being intended to keep aboriginal people isolated or frozen in time.  Instead they are allowed -- like any Canadians -- to use what assets and rights they do have to advance their lot in life and improve their personal and family economic circumstances.  

Nunavut Lands Claim Decision

The decision of the Nunavut Court of Justice in NTI v. Canada (Attorney General), 2012 NUCJ 11 is finally available and makes for interesting reading for those interested in the question of the degree to which the courts will hold Canada accountable for the implementation of modern treaties.  This case is a cautionary tale for both aboriginal peoples and Crown.  For aboriginal people contemplating ratifying a modern treaty the facts of this story send an important message about the degree to which they can expect Canada to act with good intentions and honourably based upon political good will: don't expect it to happen.  Before the litigation commenced Canada clearly dragged its heels in implementing a major promise made in the Nunavut Lands Claim Agreement; finally only acted in the face of litigation; and aggressively resisted any timely adjudication of its dispute with NTI or any meaningful remedy once litigation commenced.  In a word, Canada acted throughout as a bully.

For Canada the cautionary tale lies in the outcome of the case.  While the judgment is a dense read (not made easier by the unfortunate typeface and formatting used by the court) with many procedural twists and turns the core message that comes through in the end is one of outrage.  Justice Johnson clearly came to the view that Canada was a bully throughout and essentially was shirking honouring ts obligations under the treaty to the extent that it could and trying to delay and avoid any real consequence for disregarding its obligations.   In Justice Johnson's judgment there is a clear sense that this is no way to encourage any meaningful form of reconciliation with aboriginal people and that the Courts cannot allow such conduct to go unsanctioned.  Given Canada's conduct Justice Johnson was willing to cut through significant legal thickets to provide a timely and meaningful remedy.

The judgment is lengthy and much of it focuses on technical questions concerning whether or not summary judgment is available in the circumstances.  In the end though this case boils down to a few relatively simple observations.   First, under Section 12.7.6 of the NLCA thre is a requirement for general monitoring to collect and analyse information on the long term state and health of the ecosystemic and socio-economic environment in the Nunavut Settlement Area.  Government, in co-operation with the NPC, shall be responsible for developing a general monitoring plan and for directing and coordinating general monitoring and data collection.  Under the NCLA there is a schedule established for planning and implementing this general monitoring plan (which is called the Nunavut General Monitoring Plan or NGMP).  Canada was ultimately responsible for implementing and financing the NGMP.

Second, despite being prodded by NTI for several years to get on with planning and implementing the NGMP, Canada declined to move forward with this obligation until NTI commenced this action in the Nunavut Court of Justice.  Finally in 2010, several years behind schedule, Canada implemented the NGMP.

Third, the Inuit were collectively worse off because of Canada's failure to implement the NGMP as they were deprived of the performance of the their agreement but also because they were deprived of the knowledge and data that would have come from a properly implemented monitoring program.  However,the loss suffered by the Inuit because of this breach is very difficult to put into numerical or cash terms.

Fourth, Canada undoubtedly benefited from its foot-dragging as essentially it avoided several years of monitoring costs.  Canada's savings were somewhere between $11,000,000 and $14,000,000.

The two real substantive questions before the Court were these: (1) did Canada breach the Nunavut Lands Claim Agreement and (2) what damages should be awarded? Needless to say Canada denied that it breached the agreement, essentially putting forward a halfhearted argument that this was a discretionary promise that it was free to delay as it saw fit.  More seriously Canada denied that the Inuit should get any remedy or meaningful award of damages.  Canada said no declaration was needed because it had now started implementing the NGMP.  It also said that because the Inuit could not prove what harm they suffered in a numerical sense their damages should be limited to "nominal" damages -- that is to a symbolic figure such as $100.

Needless to say NTI had a different perspective on these issues.  NTI argued that the implementation of the NGMP was an important part of the overall treaty package for which they had made significant sacrifices.  The treaty established a relationship between Canada and the Inuit in these circumstances that was both contractual and fiduciary in nature.  Canada's delay in implementing the NGMP amounted therefore to both a breach of contract and breach of fiduciary duty.  NTI also argued that given the special circumstances of this case and given the fact that Canada had clearly benefited from a breach of treaty that harmed the Inuit the fact that damages were hard to quantify should give rise to a damages calculations based upon what lawyers call "disgorgement" -- in lay terms, Canada should be required to "choke up" the benefit it got from its breach of the treaty.

Once the Court worked its way through the procedural thicket of whether or not it could grant summary judgment (that is, judgment before a full-blown trial) it had a reasonably easy time in finding that Canada had breached both its plain legal obligations under the treaty and its fiduciary duties towards the Inuit.  Fundamentally the Court found that there was clear evidence of a commitment to plan and implement the NGMP in a timely way that was in fact reflected in a schedule and Canada simply failed to move ahead with the matter without any explanation other than the desire not to invest the time, effort and resources.  

This aspect of the decision will be undoubtedly challenged on appeal both for technical as well as substantive reasons.  Substantively it will be most interesting to see if the appeal courts uphold the finding that there was a fiduciary duty and a breach of that duty.  That finding -- which is a more flexible and generally applicable finding -- marks a clear revival of what had been something of a whithering branch of the aboriginal law tree.  While the courts have been applying the concept of the honour of the Crown liberally in the last few years there has been less willingness to impose the somewhat more stringent standards expected of a fiduciary.  The application of this doctrine in the context of a modern treaty is a noteworthy event.  

The Court then went on to the more complex issue of damages.  Ultimately the court found that the Crown's behaviour was such that it would run against the tenor of the law and good public policy to allow the Crown to escape essentially unscathed from its breach of the treaty and its fiduciary duties.  The Court therefore held that on either a contract basis or on the basis of a breach of fiduciary duty Canada was required to disgorge the savings it had made by breaching the treaty.  On this basis Justice Johnson awarded damages of $14,817,500.  The sense of Justice Johnson's concerns are best captured in the following passage: 

[333] I am satisfied that Canada’s failure to implement an important article of the land claims for over 15 years undermined the confidence of aboriginal people, and the Inuit in particular, in the important public value behind Canadian land claims agreements. That value is to reconcile aboriginal people and the Crown. It would be manifestly unjust to allow the Crown to benefit from its failure to fulfill its obligations under Article 12.7.6. It is also important that to ensure that the Crown properly respects and fulfills its obligations under land claims agreements, including obligations to provide benefits that are not capable of being quantified in financial terms.

It will be fascinating to watch this case on appeal as it is likely to arrive at the Supreme Court of Canada.

Attawapiskat Decision Systemic Blow to Federal Government

The Federal Court decision  finding that the Federal Government  acted unreasonably and unlawfully in appointing a third party manager to run the affairs of Attawapiskat is a blow to the Federal Government on a number of levels.  In terms of short term politics it is obviously not a good development from the government's perspective to be taken to task in such a high profile way.  However this decision actually marks a more systemic blow to the Federal Government. It significantly alters the balance of power between the Federal government and bands in the use of the Federal government's financial powers to take over the management of bands.

There were really two battles in front of Justice Phelan.  One -- which got the most coverage last week -- was whether or not the government had acted reasonably in appointing a third party manager.  Here the Court found that while the band had breached its Comprehensive Financing Agreement (the "CFA") it simply did not make sense to appoint a finance manager when the breach related to a non-financial housing problem.  In a sense Justice Phelan said that it made no sense to send a fire engine to battle a flood by turning the hoses on when there was a perfectly good flood control team at the ready.  In making this ruing Justice Phelan essentially dismissed the innuendo and allegations spread by the government and repeated in the press that the band was a financially mismanaged quagmire.

The second battle was over whether or not Justice Phelan could hear the matter at all.  Part of this skirmish was over whether or not the application before Justice Phelan was moot or academic (which Justice Phelan dealt with in short order).  More significant was the question of whether or not the procedure (known as judicial review) was available to police the government when it chose to use powers contained in the CFA rather than powers under the Indian Act.  The judicial review process is designed as a quick and effective means of allowing citizens and others to get into  court to challenge government decision making and get quick answers and quick solutions at a reasonable cost.  While slow and expensive in ordinary human terms, judicial review shortens the time from challenge to decision by years -- indeed sometimes decades -- and reduces the costs by an order of magnitude.  As a practical matter being able to use judicial review if you are small remote community is the difference between being able to hold the government to account and being run over.

Almost every band in Canada has a CFA.  These agreements essentially finance band governance to the extent that the band takes on responsibility for the delivery of certain social programs such as welfare, health and housing on behalf of the Federal government.  Attached to each budget there is a percentage increment that represents the expected overhead or administrative cost of running the program or service.  Over a group of programs this overhead amount adds to enough to allow the Band council to hire a few workers to administer these programs and in their minimal spare time provide other band support services (book-keeping, basic administration, meeting organization and so forth).  In theory this system can work, in practice it is very hard to stretch the dollars to actually deliver the programs and also provide need band administration.  This of course also assumes that everything goes right -- which in reality it rarely does.  Thus for example a band's finances can easily be devastated if just a few members are unable to pay their rent on what is essentially public housing.  The band still has to pay off the loan but now the income necessary to support that payment is absent meaning it has to poached out of other sources of funds.  The net result is that many bands, particularly small bands or remote bands with few economic opportunities, are always close to the edge or deep in the red.

It is here where Attiwapiskat's recent victory becomes important.  The CFA contains provisions dealing what the government can do when various defaults arise.  These defaults are fairly broadly defined and at one time or another almost every small band or remote band is either close to or in default.  The most draconian remedy available to the Federal government in this situation is the ability to appoint a "Third-Party Manager".  In ordinary terms this is somewhat like appointing a receiver.  With the appointment of a Third-Party Manager every financial decision by the band from the writing of pay cheques, to the building of new housing, to the hiring of lawyers, to the buying of paper for the office is subject to the control of the Third-Party Manager.  While the band notionally retains its self-government powers under the Indian Act it is deprived of any real autonomy.  Moreover, the band is responsible for paying the Third-Party Manager and so the already strapped finances of the band are stretched even further.

Attawapiskat's battle with the Federal government was essentially over whether the Federal government could essentially live outside the usual constraints put on government agencies because this was a contractual arrangement rather than a public act.  Generally we expect government officials acting to affect the day to day rights of citizens to act with more probity and regard for citizens than we would expect band officials to act in the context of commercial arrangements. We also expect that they can be held to account through the mechanism of judicial review. By contrast, banks and their customers are expected to comply with their contracts but as long as the bank lives by the terms of loan document it is free to act in its own self-interest.  For example, once a borrower is in default the courts and other recognize that the bank is looking out for its own interests in what is largely a private matter.  If a borrower is put into bankruptcy or prevented from achieving its aspirations or pursing its goals -- too bad -- that is a private matter that the courts will not generally meddle in unless there is a clear breach of contract.  The Federal government has largely taken the view this is the world it is operating in when dealing with CFA's.

What Justice Phelan has done is say that this is wrong.  The financing of public services and band administrations is not a commercial matter to be judged in a commercial context.  Putting a band into a form of quasi-receivership -- especially in the midst of a public housing crisis and a political debate is no mere private matter.  It is a matter of grave public concern and fundamentally governmental in action.  In this case its actually smacked as much of an effort to silence the band council and stifle debate  as much as an effort to control a financial crisis.  As such Justice Phelan held the government had to act reasonably and could be held account using the processes designed to ensure speedy and effective accountability on the part of the Federal government.  This is a precedent that will benefit First Nations across Canada and hold the Federal government to a higher, more honourable, standard of conduct.

Federal Government Breaches Nunavut Agreement

The judgment in this case is not yet available on-line but it appears that the Federal Government has been held to account for failing to live up to its commitments coming out of the lands claim agreement that created Nunavut .... http://www.nunatsiaqonline.ca/stories/article/65674nunavut_inuit_org_wins_14.8m_judgement_on_general_monitoring_plan/

Seems Canada has problems keeping even its modern promises.

The Tsilhqot'in Decision -- Immediate Thoughts

The British Columbia Court of Appeal rendered its judgment in the Tsilhqot'in decision.  There will undoubtedly be enough papers published about this decision to support the forest industry for years to come, but, just for the use of those of you out there who want the initial half baked thoughts of the one of the participants, here goes.  These thoughts are not an analysis of the case -- that will follow but more in the nature of birds-eye view comments about where this decision takes us and where it will likely go.

First, the Court of Appeal is clearly throwing down the gauntlet to the Supreme Court of Canada in this decision and, in essence, saying "you tell us what you really mean by aboriginal title."  It is difficult to read this decision without getting the strong sense that the Court of Appeal believes that the Supreme Court of Canada has done everyone a disservice by not really telling us much about what they see the extent of aboriginal title being.  Justice Groberman clearly sees this uncertainty as serving no-one's purposes:

[161]     To some degree, the apparent reluctance of the courts to go beyond what is needed to resolve the specific cases is understandable. I have already noted that that is the traditional manner in which the common law has developed. Further, the stakes in Aboriginal title claims have been high – cases such as Calder, Delgamuukw, and Marshall; Bernard involved vast areas of land. The resolution of such claims can be critical to the future of both the First Nation involved and the broader Canadian population.

[162]     The technical difficulty of this area of law has exacerbated the problem, and has led to considerable frustration. The efforts of the Nisga’a in Calder, the Gitksan and Wet’suwet’en in Delgamuukw, and the Tsilhqot’in in this case (to this point) all consumed enormous amounts of resources, only to have the cases end inconclusively due to problems with the way they were commenced or pleaded.

[163]     The courts have frequently emphasized the need for resolution of Aboriginal rights and title issues through negotiated agreements where possible. The trial judge in this case went beyond the ordinary role of the court in attempting to set the stage for a negotiated resolution. Negotiated resolution of issues, however, is not facilitated by uncertainty in the law.

[164]     It is apparent that all sides have attempted to resolve the issues in this case, but without success. That is not surprising, given that the theories of Aboriginal title espoused by the plaintiff, on the one hand, and the defendants, on the other, are as far apart as they are. The trial judge’s decision to provide a non-binding opinion as to the title area did not, in the end, assist the parties in finding common ground.

In this comment there is much truth:  it is really a scandal that both Calder and Delgamuukw ended in uncertainty flowing from procedural, technical or evidentiary  errors.  It would have only made the law look even more discreditable if the Tsilhqot'in case had ended the same way.  There are many who say that the lawyers are the only real winners in aboriginal litigation and that view would certainly have been reinforced if the Court of Appeal had not come to grips with the issues.


Second, the Court of Appeal clearly takes the view that aboriginal title is a limited right with a modest (I would say close to non-existent) role to play in the process of reconciliation but views non-title aboriginal rights as being far more robust and significant for this purpose.  Justice Groberman's dismissive view of aboriginal title as a significant right is best seen in the examples he cites of where aboriginal title may exist outside of village sites or cultivated fields:

[221] In particular, I note that the examples of title lands given at para. 149 of Delgamuukw are well-defined, intensively used areas. The reference to hunting, fishing and other resource extraction activities is coupled with a specific description of the lands so used as “definite” tracts of land. I agree with British Columbia’s assertion that what was contemplated were specific sites on which hunting, fishing, or resource extraction activities took place on a regular and intensive basis. Examples might include salt licks, narrow defiles between mountains and cliffs, particular rocks or promontories used for netting salmon, or, in other areas of the country, buffalo jumps.

This definition seems to completely move past the word "tract" that was used in Delgamuukw and place the whole focus on the concept of "definite".  In plain English a "tract" generally means an "extended area of land" and is synonymous in some contexts with concepts such as a "district" or "region".  I suspect that most copy editors would have some difficulty in accepting without comment the use of the word "tract" to describe a salt lick or rock.   


If this is was what the Supreme Court of Canada meant by aboriginal title in Delgamuukw it is hard to see what they were doing sending the matter back to trial.  The plaintiffs in Delgamuukw clearly did not have this in mind in their pleading and the trial judgment likely would have happily conceded such places to them (save for the trial judge's view of extinguishment) and moved on.  The Gitxsan certainly would not have wanted to go back to trial to figure out their rights to the salt licks in their territory.


Third, the governments may come to regret this victory.  To date the governments have been concerned about aboriginal title because of the fact that they have viewed it as a more robust right than typical aboriginal harvesting rights.  In the eyes of the government as long as the Indians can hunt moose somewhere infringements of hunting rights will be easily justified.  The Court of Appeal takes a different view and appears to be determined to hold the Province to a much higher standard and to give much greater substance to the entire bundle of rights held by an aboriginal people.  Justice Groberman says:

[235] It seems to me that the plaintiff’s approach to Aboriginal title does not account for the fact that title is not the only tool available to provide cultural security to the Tsilhqot’in.

[236] Aboriginal rights of various sorts protect cultural security and safeguard the ability of First Nations to continue to engage in traditional lifestyles. Indeed, as British Columbia points out, the phrase “cultural security and continuity” was originally used in Sappier; Gray to describe the function of Aboriginal rights in general, not merely Aboriginal title.

[237] Aboriginal title, while forming part of the picture, is not the only – or even necessarily the dominant – part. Canadian law provides a robust framework for recognition of Aboriginal rights. The cultural security and continuity of First Nations can be preserved by recognizing their title to particular “definite tracts of land”, and by acknowledging that they hold other Aboriginal rights in much more extensive territories.

On the whole this is still a major step backwards towards the "bundle of rights" theory rejected by the Supreme Court of Canada in Delgamuukw but aboriginal people should test the Court on this invitation to look to more extensive aboriginal rights to protect their cultural sovereignty.  These rights need not be limited to pure "harvesting" rights.  For example, why should an aboriginal people who consistently excluded others from their territory prior to and at 1792 not be able to assert an aboriginal right to exclude others (even if they cannot prove the occupancy necessary to found the Court of Appeal's impoverished view of aboriginal title).  In this respect it is worth noting that the aboriginal people of the prairies and the Northwest Territories have been very successful in advancing their interests without recourse to aboriginal title.

Finally though this note of optimism has to be tempered by the fact that the Court of Appeal sends and explicit and disheartening message about the project of reconciliation and the recognition of aboriginal rights and aboriginal title -- namely that it is a project that is only really worth pursuing to the extent that it does not make vested non-aboriginal interests uncomfortable:

[239] It seems to me that this view of Aboriginal title and Aboriginal rights is fully consistent with the case law. It is also consistent with broader goals of reconciliation. There is a need to search out a practical compromise that can protect Aboriginal traditions without unnecessarily interfering with Crown sovereignty and with the well-being of all Canadians. As I see it, an overly-broad recognition of Aboriginal title is not conducive to these goals. Lamer C.J.C.’s caution in Delgamuukw that “we are all here to stay” was not a mere glib observation to encourage negotiations. Rather, it was a recognition that, in the end, the reconciliation of Aboriginal rights with Crown sovereignty should minimize the damage to either of those principles.

For aboriginal people the whole Section 35 project and the idea of reconciliation is only meaningful if it is likely to result in substantial positive change in the circumstances of aboriginal people. If this is limited -- even in areas of Canada that are largely uninhabited by non-aboriginal people -- to legal concepts and rights that do not interfere with Crown sovereignty or the "well-being" of Canadians then it is unlikely this idea of reconciliation is going to appeal to many aboriginal people.  Instead it is likely to reinforce the idea prevalent in aboriginal communities that ideas such as aboriginal rights, aboriginal title and reconciliation are empty phrases primarily designed to allow non-aboriginal people to feel redeemed and righteous about their own conduct and institutions.

The Tax Exemption a Year After Bastien

It has been about one year since the Supreme Court of Canada released its decision in Bastien Estate v. Dube, 2011 SCC 38, [2011] 2 SCR 710 and we now have some indications as to how the lower courts are applying this decision.  As expected, the result of this decision has generally been a more pragmatic openness to applying the tax exemption to protect income being earned by Indians who are based on the reserve and carrying undertakings that have some meaningful overlap with the reserve.  On the other hand, these decisions have not changed the status of employment arrangements that appear to be simply designed to move "off-reserve" work on reserve.  This development is consistent with the nature of the Supreme Court of Canada's decision, which really marks more of a change in the tone of the law rather than a radical re-working of the test.  The Williams test still stands as the test to be applied, but it is no longer dominated by concerns about the commercial mainstream.

The most important decisions showing this more expansive approach  in the wake of Bastien are Canada v. Roberts 2012 FCA 94 and Ballantyne v. Canada 2012 FCA 95 together with the similar tax court case, McDonald v. The Queen, 2012 TCC 437.  Each of these cases either directly or indirectly concerned the question of where income from fishing carried out from a reserve base should be treated as being situated for the purpose of the s. 87 tax exemption (note McDonald was an employment insurance case but following Williams this requires an analysis of the status of the underlying income that gave rise to the employment insurance benefits).  As is typical in these cases there is a laundry list of factors that link the income either to the reserve or tend to disconnect it from the reserve (for example, the fish are all caught off-reserve but the boats are launched from the reserve but the fish are sold to an on-reserve co-op but the co-op's customers are off-reserve).  In all three cases the courts arrived at the conclusion that there was sufficient connection to the reserve to situate the income on-reserve and so attract the protection of s. 87.  What is notable in each case there is a near absence of a "commercial mainstream" analysis such as that that dominated the law after the Recalma decision. 


By contrast in Marcinyshyn v. The Queen, 2011 TCC 516 the Tax Court continued to reject the National Leasing approach to trying to move off-reserve social services earned income on-reserve through creative structuring of the employment relationship.  The Court in this case continued the pattern established in earlier cases such as Shilling where the court declined to find that the facts that the employer was situated on reserve and the work was for the benefit of an aboriginal population sufficed to put the income on-reserve where the services were predominantly delivered at urban locations situated far from any reserve.


The Federal government has filed leave to appeal applications in the Robertson and Ballantyne cases.  From the perspective of the Federal government these cases appear to give weight to fact that the fishing was occurring on traditional territory and/or was connected to traditional fishing practices.  Thus, the government argues, the Federal Court of Appeal erroneously moved away from a focus on whether the income was on or off reserve to an analysis of whether the income was tied to the traditional way of life in some fashion.  In effect, the government argues, the Federal Court of Appeal has now completely reversed the Recalma analysis and moved toward a position that considers whether or not the income is in some way "traditional" and, if such a link can be made at all, gives that link predominant weight, even if the actual income involves sale into the commercial mainstream.


In fact however this does not actually appear to be what the Federal Court of Appeal is doing.  What is really happening in these cases is an attempt by the Federal government to introduce into the s. 87 test a requirement that the income be "predominantly" on-reserve.  That is, in order for income to attract the s. 87 tax exemption it must be show that it has a greater connection to the reserve than to off-reserve lands.  The difficulty with this approach is that this runs against the wording of s. 87 (which does not require on its face that the income be "exclusively" or "predominantly" on-reserve) and the larger principle that ambiguous phrases should be interpreted in favour of the aboriginal people.  Looked at grammatically it is entirely reasonable to say that income can be related to both reserve and non-reserve lands and can therefore be viewed as being "on" both.  Once this determination is made the income satisfies the test for the application of the s. 87 exemption (that is, it is "on" reserve) and the exemption should apply.

Province Moves Quickly to Repeal Tax Exemption

Last month the Musqueam won an interesting case that held that certain rural lands held for Indian bands were tax exempt under Provincial law.  The province has now responded by repealing part of the exemption significantly narrowing its reach by s. 86 of the Budget Implementation Bill, 2012.

Pity they do not act as quickly to solve other aboriginal problems.