Canada: Aboriginal Law @ Gowlings: April 17, 2012

Federal Court of Appeal Rules Income From First Nation Commercial Fishery is Exempt from Taxation

Decisions appear to confirm trend favouring application of Indian Act tax exemption

The Queen v. Robertson, 2012 FCA 94 and Ballantyne v. The Queen, 2012 FCA 95


The Federal Court of Appeal (FCA) has released two important decisions involving First Nation fishers who had originally been assessed income tax on income earned from commercial fishing activities.  In both decisions, the FCA determined that the fishing income earned by the First Nation Appellants was the personal property of an Indian situated on a reserve and therefore exempt from taxation under s. 87 of the Indian Act.

These important decisions build upon the recent landmark rulings of the Supreme Court of Canada in Bastien v. The Queen and Dubé v. The Queen, which breathed new life into the s. 87 tax exemption after a two-decade decline. 

Importantly, the recent decisions confirm that Bastien and Dubé constituted a "restatement of the relevant law" and will have broad application.  The Federal Court of Appeal has underscored that Bastien and Dubé "reset the previous the analytical framework in some significant respects," noting in particular that the Supreme Court "rejected the 'commercial mainstream' principle as a basis for determining if property was situated on a reserve and the notion that the activities giving rise to the property must be linked to a traditional way of life."  The Court further stated that the Supreme Court has "firmly rejected the 'false opposition' between income earned in the 'commercial mainstream,' and that earned from an activity that was 'integral to the life of the reserve,'" and that "property can be both in the commercial mainstream and connected (or even integral) to a reserve at the same time." 

These two constructs – the "commercial mainstream" and "traditional way of life/integral to the life of the reserve" – are not found in the wording of s. 87 but were introduced by the courts into the s. 87 test. Over the last 20 years, they had come to supplant the exercise of determining the legal location of property, in favour of an exercise by which the courts assessed whether property was "in the commercial mainstream" as opposed to supporting a "traditional way of life."  Using this approach, property was routinely deemed to be off-reserve and taxable.  The approach -- which had been much-criticized by observers, practitioners and academics -- proceeded by assessing the nature of the property as opposed to its location.  The Supreme Court of Canada has now confirmed that this is incorrect, and that the focus must be on simply locating the property. Regardless of its nature, if property is on reserve, it is exempt from taxation.

The decisions of the Federal Court of Appeal are significant in several respects.  First, they appear to confirm that two factors – residence of the status Indian and the "traditional" nature of the activities giving rise to the income – cannot be used as a basis for denying the exemption, but nevertheless can help strengthen connections to a reserve and therefore the application of s. 87.  

These decisions do leave certain questions unanswered.  The Court noted that the source of income is "a very important indicator" as to whether the income is situated on a reserve, including locating the customers of the business.  It cites Williams and Bastien as authority for that proposition.  Yet in Dubé, the companion case to Bastien, the source of the capital invested was clearly not determinative as to the location of the resulting interest income, since its source was unknown and likely off-reserve.  Furthermore, Bastien and Dubé confirmed that general legal principles are relevant to determining location of property for the purposes of s. 87, and the Indian Act, like the Income Tax Act, does not exist in a vacuum.  In this regard, the location of a business' customers is generally not relevant to locating the business itself.  Rather, the general law looks to where the "central management and control" of the business occurs. 

The decisions appear to confirm a reversal of a longstanding trend over the last 20 years that had seen the scope of the s. 87 tax exemption narrowed to the point of its near disappearance.  Since the decisions in Bastien and Dubé were released in July 2011, four decisions have been rendered in relation to the s. 87 exemption.  Three of those decisions – one at the Tax Court level and two at the Federal Court of Appeal -- have applied the exemption.  In the previous 20 years, the Federal Court of Appeal had applied the exemption in only three instances.


Mr. Robertson and Mr. Saunders are Indians within the meaning of section 2 of the Indian Act and members of the Norway House Reserve located on the south shore of Little Playgreen Lake in Manitoba.  During the taxation years in question, the Appellants were self-employed commercial fishers.  They owned fishing licenses and received fishing quotas through a Cooperative (Co-op).  In addition, the Appellants stored and maintained their boats on the Reserve.

The Appellants fished off Reserve and returned their catch at the end of the day to a Co-op owned packing station located close to the Norway House Reserve.  During the taxation years, the Co-op employed 52 members, most of whom lived on the Reserve.  In addition, the Co-op employed 160 Band members.  The Co-op purchased the catch from its members as an agent for a fishing corporation.  The First Nation fishers were paid weekly based on the receipts sent to the Co-op from the packing station.  The fishermen's wages were paid by the Co-op from funds provided by the fishing corporation which paid money into the Co-op's bank account to be held in trust for this purpose.  Fishers collected their weekly payments from the Co-op's administration office located on the Reserve.

As an agent to the fishing corporation, the Co-op was instrumental in assisting the Band members with most aspects of the fishing business including: providing loans for the purchase of boats; selling gas, oil, gear and nets; and receiving and dividing the fishing quotas managed by the provincial government.

Based on the above-noted facts, the trial judge held that the Appellants' income was situated on the Norway House Reserve and was therefore exempt from income tax under s. 87 of the Act.  The Tax Court judge ruled that the Minister of National Revenue wrongly included business income earned from commercial fishing and employment insurance benefits received from that fishing income.

The Crown appealed the Tax Court decision on the basis that the Appellant's income was not sufficiently connected to the Reserve to attract the protection of section 87.

FCA Analysis

The Federal Court of Appeal Court applied the analytical framework set out in Bastien and Dubé in order to determine the location of the Appellants' business income generated from fishing.  In doing so, the Court first reviewed the purpose of s. 87 and found that the statutory objective was limited to the personal property of an Indian situated on a Reserve and the property did not have to be integral to the life of the Reserve or to the preservation of the traditional Indian way of life.

While the Court acknowledged that s. 87 is not limited to income earned in the course of activities that could be characterized as integral to a First Nation's traditional way of life, in this case the close connections to the Reserve served to strengthen the connections between the Appellants' income and the Reserve.  Moreover, the Court determined that the fact that the fishing income earned by the Appellants was earned in the commercial mainstream, this did not weaken the connection of the income to the Reserve.  The Court confirmed that property held by an Indian can be "both in the commercial mainstream and connected (or even integral) to a Reserve at the same time."

The FCA determined that the location of the fishing business would largely determine the location of the income earned from it.  In locating the source of the Appellants' income, the Court divided the activities into two broad categories; fishing and selling fish.  The Court found that, even though fish were not caught on the Reserve, many of the activities associated with fishing were located on the reserve.  With respect to selling the fish, the Court acknowledged that the Appellants were aware that the fish they caught were eventually taken by the fishing corporation and sold to customers off-Reserve.  However, from the perspective of the fisherman, all of their business dealings were with the Co-op and therefore situated on Reserve.

Having considered all of the relevant factors, the Court concluded the role of the Co-op as an on-Reserve institution conducting fishing business for its members, most of which live on the Reserve, attached the Appellants' business activities to the Reserve, and therefore their income is exempt from taxation by virtue of s. 87.

The Court further found that the income earned from the employment insurance benefits was also situated on a Reserve because that was the situs of the qualifying activities.


Mr. Ballantyne is a status Indian and a member of the Grand Rapids First Nation which is located on the shore of Lake Winnipeg in Manitoba.  The Tax Court trial judge originally determined that Mr. Ballantyne's fishing income was not situated on a Reserve and was therefore not exempt from tax under section 87 of the Act.  The Tax Court based its decision on the fact that Mr. Ballantyne sold his entire catch to a fish corporation located off Reserve and carried on his fishing activities in the commercial mainstream.

Similar to the material facts in Robertson, Mr. Ballantyne was a self-employed fisherman who primarily fished at an off-Reserve location.  Mr. Ballantyne was also a member of an on-Reserve Co-op which employed band members as staff.  The Co-op that Mr. Ballantyne worked for provided assistance to the First Nation community by way of loans and extending credit for fishing supplies.  A similar payment schedule for the catch and sale of fish was exercised, and the funds to pay the fisherman were also held as a trust by the Co-op.

The Court relied on its reasons in Robertson to find that Mr. Ballantyne's commercial fishing income was sufficiently connected to a Reserve to be tax exempt.  The Court also noted five differences in the two proceedings: unlike one of the Appellants in the Robertson decision, Mr. Ballantyne lived on Reserve; the fish packing stations used by Mr. Ballantyne were located on Reserve; and most of the time Mr. Ballantyne cleaned his fish on Reserve.  These factors were all determined to strengthen the connection between the Reserve and Mr. Ballantyne's fishing business income.

Finally, the Court noted that there was less historical evidence adduced in the Ballantyne proceedings but that would not ultimately affect the question of whether the fishing income was situated on a Reserve.  The Court also pointed out that Mr. Ballantyne personally owned the fishing quotas as opposed to the Robertson decision where the Co-op owned the quotas.  The Court weighed this factor and determined that all of the other circumstances established the necessary connection between Mr. Ballantyne's fishing income and the Reserve.

It was determined that Mr. Ballantyne's income was sufficiently located on a Reserve and the decision of the Tax Court was set aside and the matter was to be remitted to the Minister for reassessment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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