The Federal Court of Appeal dismissed an appeal by Canada relating to whether business income earned by a status Indian taxpayer was exempt from income tax pursuant to s. 87(1)(b) of the Indian Act. The Court of Appeal also upheld the costs award made by the Tax Court judge.

In 2012, the Tax Court of Canada allowed an appeal by Mr. Dickie that business income earned by his proprietorship in 2003 was exempt, as being personal property “situated on a reserve” within the meaning of s. 87(1)(b) of the Indian Act. The Court applied the “connecting factors” test as recently restated by the Supreme Court of Canada in the Bastien Estate and Dubé cases. Pizzitelli J. found that the managerial activities of Mr. Dickie’s business, which took place on-reserve, were “much more than merely incidental to the business” and highly indicative of the situs of the business activities. Other connecting factors pointed to the reserve as being the location of the property. The Tax Court rejected Canada’s arguments about the nature of the business being part of the “commercial mainstream”: 2012 TCC 242. This decision was summarized in our e-Newsletter of 9 August 2012.

In a subsequent decision, the Tax Court awarded $90,000 in costs and disbursements to Mr. Dickie: 2012 TCC 327. This decision was summarized in our e-Newsletter of 11 October 2012.

Upon appeal, Canada conceded that the Tax Court judge applied the correct legal test. No palpable and overriding errors of fact were identified. Canada argued that the Tax Court had not given appropriate weight to certain connecting factors. The Federal Court of Appeal held:

As noted by this Court in Horn v. The Queen, 2008 FCA 352, it is the role of the trial judge to assess the weight to be given to the various connecting factors in determining whether the exemption from taxation as provided in section 87 of the Indian Act will be applicable to any particular income. It is not the role of this Court, unless the trial Judge has committed a palpable and overriding error in assessing the factors or has committed an error of law, to substitute its view of the relative weight to be given to the various factors.

The costs award made by the Tax Court judge was also affirmed, as section 147 of the Tax Court of Canada Rules (General Procedure) provides discretion to fix an award of costs.

The appeal was therefore dismissed with costs.

http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/66806/index.do

Author

Scott Kerwin 
SKerwin@blg.com
604.640.4029

Expertise

Aboriginal Law