The Tax Court of Canada dismissed an appeal by an Aboriginal taxpayer relating to assessments for the 2000 to 2002 taxation years. There were insufficient connecting factors to locate the income, derived from coastal fishing, to a reserve.

The late Charles Pilfold was a status Indian who died in 2011. For the years 2000 to 2002, he received income from various family-held companies, mostly derived from fishing. The company books were held at the Pilfold family’s home at the Musqueam Indian reserve near Vancouver. Mr. Pilfold’s principal residence, as set out in a property tax notice, was his house in Prince Rupert, although he used the Musqueam address when dealing with the Canada Revenue Agency (CRA). He also spent many nights on the fishing boat, as well as property in Washington State and Palm Springs, California.

Mr. Pilfold reported net fishing income of approximately $165,000 in 2000, and net fishing income of approximately $65,000 in both 2001 and 2002. He claimed an exemption pursuant to section 87 of the Indian Act on the basis that the income was situate on a reserve. The CRA denied the exemption.

The Court reviewed the Supreme Court of Canada decisions in Bastien Estate v. Canada, 2011 SCC 38 and Dubé v. Canada, 2011 SCC 39 regarding the “connecting factors” test. In McDonald v. The Queen, 2011 TCC 437, the Tax Court identified the following factors: (1) type of business and location of business activity; (2) location of customers (debtor) and where payment was made; (3) residence of business owners; (4) where business decisions were made; (5) where books and records were kept; and (6) the nature of work and commercial mainstream.

There must be a substantive basis on which to situate the property interest on a reserve. The Court must allow a degree of flexibility in the analysis, so as to avoid potentially abusive or artificial manipulation of the connecting factors. The residence of Mr. Pilfold at the Musqueam reserve carries little weight, due to his other residences in Prince Rupert, the United States, and his time on the fishing vessel. Most of the business activity took place off reserve. The fishing equipment was kept in Steveston. The processing plant and related equipment were off-reserve in Port Edwards. Most of the planning for the fishing business took place on the boat itself, during the fishing season. Mr. Pilfold sailed from Steveston to the area north of Prince Rupert for fishing.

The location of the business records on-reserve was given little weight. Simply having the corporate head office on-reserve is not sufficient to locate any income derived from such businesses on-reserve. If that argument was accepted, the subtle shifts in the “connecting factors” test would lead to an altogether different bright line test. It would be too easy to manipulate this analysis.

The Court dismissed the appeals by the taxpayer. There was no award of costs, since the courts have had to readjust their analysis in light of Bastien Estate and Dubé.


Scott Kerwin


Aboriginal Law