Canada: Pilfold Estate v. The Queen, 2013 TCC 181, Tax Court Of Canada (C. Miller J.), 10 June 2013

Last Updated: August 12 2013
Article by Scott Kerwin

Most Read Contributor in Canada, September 2016

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. Click here.

Turcotte v. The Queen, 2013 TCC 171, Tax Court of Canada (Bocock J.), 29 May 2013

The Tax Court of Canada granted an application by an Aboriginal taxpayer to file a Notice of Appeal outside the 90-day appeal period found in s. 167 of the Income Tax Act.  The Court held that the applicant's argument about "disputed reserve lands" and the claims of the Six Nations Band of the Grand River satisfied the threshold of showing reasonable grounds for the appeal.

The applicant Turcotte filed her Notice of Appeal two weeks late. An extension may be granted if the conditions found in ss. 167(5)(b)(iv) of the ITA are met. The key issue in this application is whether Turcotte satisfied the test for showing that "there are reasonable grounds for the appeal". Turcotte's appeal is based upon section 87 of the Indian Act.  She claims that her employment income is exempt from tax as it is property located on a reserve. Turcotte is a member of the Six Nations Band of the Grand River. She resides in Ayr, Ontario – located between Kitchener and Brantford – and works in Kitchener. Her employer K-W Urban Native Wigwam Project has offices on- reserve, but its operations are located off-reserve. Justice Bocock commented that, on these facts alone, the appeal should be dismissed since those precise facts have already been before the court, including in a previous appeal by Turcotte. However, in this application, Turcotte put forward new arguments about "disputed reserve lands". She alleges that both her residence and her workplace are located in the Haldimand Tract, which is the subject of a well-publicized dispute (including the Caledonia protests). In light of these facts and arguments, the Court concluded that it was appropriate to allow the application for an extension, so that this matter can "see the light of day before a hearing judge of this Court" rather than be dealt with in a mere application for an extension of time. The Court criticized the generic and formulaic pleadings filed by the applicant, and made an additional order that new pleadings be filed with sufficient particulars of the facts and statutory provisions of the appeal. Click here.

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