If you think Indigenous people don’t pay tax, think again

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There’s a typical false impression that Indigenous individuals in Canada merely don’t pay tax, however that’s usually not true since to be able to be exempt from tax, the revenue earned should be located on a reserve.

A latest case, determined earlier this month, handled the exemption and the way it’s utilized. The case concerned an worker who’s a Haudenosaunee Iroquois Confederacy Treaty Indian from the Six Nations of Grand River in Ontario who lives on the reserve and works as a clerk at a hospital simply exterior the reserve. She took the place that the revenue she earned from working on the hospital was exempt from tax.

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The worker is a “Standing Indian” inside the that means of the Indian Act. Underneath the act, the non-public property of an Indigenous particular person located on a reserve is exempt from tax. Prior jurisprudence has concluded that the employment revenue of such an individual is private property, and so if the taxpayer’s employment revenue from her work on the hospital was located “on a reserve,” it might be exempt from tax.

The aim of the exemption for revenue earned on a reserve, as articulated by the Supreme Court docket, is to “protect the entitlement of Indians to their reserve lands and to make sure that the usage of their property on their reserve lands (is) not eroded by the flexibility of governments to tax, or collectors to grab.” Its goal is “to not confer a normal financial profit.”

Within the latest case, the important thing query was whether or not the worker’s revenue could possibly be thought of to be earned on a reserve and, in that case, be exempt from tax. A 1991 Supreme Court docket resolution held that whether or not revenue is located “on a reserve” is decided primarily based on whether or not there are enough connecting components to the reserve.

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The court docket set out a two-step check: establish the possibly related connecting components that join the revenue to the reserve, after which analyze these components to find out how a lot weight should be given to every of them.

Prior jurisprudence has established 5 connecting components which might be doubtlessly related within the context of figuring out whether or not employment revenue might be stated to have been earned on a reserve: the residence of the employer, the residence of the worker, the placement the place the worker is paid, the placement the place the work is carried out and the character of the companies carried out.

The decide famous that for the reason that central administration and management of the hospital didn’t happen on the Six Nations reserve, this argues for taxation. Alternatively, the worker lives on the reserve, a few 10-minute drive from the hospital, which argues for exemption from taxation. The worker was additionally paid by direct deposit to her checking account on the reserve, which additionally argues for exemption from taxation.

However issues acquired a bit extra difficult when evaluating the placement of the work and the character of the companies carried out.

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The worker carried out the overwhelming majority of her work on the hospital, which isn’t on the reserve, however on non-public land that was donated to the hospital in 1961. The worker took the place that the hospital land belongs to the Six Nations, having been given to them in 1784 underneath the Haldimand Proclamation in recognition of their service to the Crown throughout the American Revolution. She stated the proclamation gave the Six Nations all of the land inside six miles of the Grand River, which is an enormous swath of land described as being “roughly 9,000,000 acres, solely 5 per cent of which is roofed by the Six Nations reserve.”

The taxpayer produced a Google Earth map purporting to indicate that the hospital was inside six miles of the reserve, however, primarily based on the distances on the map and the map’s scale, it appeared the hospital could have been situated about 8.4 miles from the reserve. Nonetheless, the decide felt this was irrelevant since he wasn’t being requested to determine whether or not the hospital’s land rightfully belongs to the Six Nations, however whether or not the hospital itself is situated on the reserve.

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The time period “reserve” is outlined within the Indian Act as a “tract of land, the authorized title to which is vested in His Majesty, that has been set aside by His Majesty for the use and advantage of a band.” Whereas the decide was keen, for the aim of the enchantment, to just accept that the hospital is situated on disputed land, authorized title to the hospital land shouldn’t be vested in “His Majesty” and concluded it’s nonetheless not situated on the Six Nations reserve, so the location-of-work issue argues for taxation.

The ultimate issue to be weighed was the character of the companies carried out. The worker’s function was to course of medical doctors’ orders, reply telephones and name bells, do scheduling, order provides, relieve different staff on switchboard duties and transfer beds when required.

The hospital serves the encompassing neighborhood, together with individuals who reside on the reserve and is certainly one of 5 hospitals within the space. Individuals dwelling on the reserve will usually go to whichever hospital is closest to the place they reside. There was no proof to recommend that the majority of the hospital’s sufferers got here from the reserve. Equally, solely three of the hospital’s roughly 100 staff lived on the reserve.

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The worker was unable to level to something concerning the nature of the companies she carried out or the operations of the hospital that might in any manner join her companies to the reserve. She felt that appreciable weight needs to be given to the truth that the hospital is on disputed land, however the decide famous that this reality “may need been related if the character of (her) work had been carefully tied to the reserve.”

Ultimately, the decide gave reasonable weight to the worker’s residence and that of her employer, little weight to the place of cost and important weight to the placement and nature of her work. Based mostly on this, he discovered that the worker’s employment revenue was taxable.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

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