Canada: Quebec Court Of Appeal Holds Aboriginal Tax Exemption Not An Exemption From Remitting Tax

In Rice v. Agence du revenu du Québec, 2016 QCCA 666, the Quebec Court of Appeal addressed arguments by status Indians that they should be exempt from the obligation to collect and remit gas taxes which are collected by the Agence du revenu du Quebec ("ARQ") on behalf of both the province and the federal government. In doing so, the Court made it clear that status Indians who sell goods to non-Indian consumers cannot avoid the administrative burden of collecting and remitting taxes from their customers who are not exempt from taxation.

The appellants are all status Indians who owned gasoline stations on the Kahnawake Reserve. The Reserve houses approximately 20 gasoline retailers and is surrounded by highways on which over 28 million vehicles travel each year. While status Indians are exempt from paying taxes on goods purchased on a reserve, including fuel, pursuant to s. 87 of the Indian Act, the vast majority of drivers who purchase fuel from the Reserve are not status Indians and were not entitled to an exemption. However, the Kahnawake gasoline retailers were not charging tax to any of their customers, including their non-Indian customers, and remitting it back to the ARQ, as required by the provincial legislation.

The tax authorities sought to enforce the Kahnawake retailers' obligation to collect and remit taxes from their non-Indian clients, and the retailers brought motions for declaratory judgment pursuant to which they sought to be exempted from these obligations on constitutional and other grounds. The Quebec Superior Court dismissed the retailers' motions for declaratory judgment, and the Quebec Court of Appeal resoundingly upheld that Superior's Court's decision and dismissed the retailers' appeal.

The Court of Appeal rejected the retailers' argument that they had a right to trade freely and openly. The retailers argued that this right stemmed from the protection of pre-contract ancestral rights under s. 35 of the Constitution Act, 1982. The Court of Appeal upheld the trial judge's conclusion that although the retailers had established that there were pre-contact traditions of exchanging precious objects of spiritual or symbolic value, this practice was of a ritual or diplomatic nature and could not be relied on to establish an overarching modern right to trade freely without hindrance. The retailers also argued that the Aboriginal Right to free and unfettered trade stemmed from the Royal Proclamation of 1763. They argued that these rights and the Royal Proclamation are an integral part of the Canadian constitution by virtue of s. 25 of the Charter. The Court of Appeal found that the Royal Proclamation sought to protect Aboriginals from the abuses of certain unscrupulous merchants, but it did not create an Aboriginal right to trade free from regulation, and noted that s. 25 of the Charter does not create new rights.

The retailers also attempted to rely on tax exemptions contemplated in the Indian Act. However, the Court also rejected this argument, finding that the retailers themselves are not paying tax even though they are responsible for remitting those taxes; rather, the retailers are mandataries for taxes paid by the ultimate consumer to the tax authorities, or the retailers are reimbursed if the exemption program applies.

The Court also rejected the retailers' argument that the Quebec measures enacted to manage the fuel tax exemption for status Indians at the pump fell within the federal competency over Indians, and thus were invalid. The Court held that budget measures fell within provincial taxation powers and that the retailers are impacted by the budget measures as retailers who sell fuel to Indian and non-Indian consumers, not because they are Indians. In doing so, the Court followed the courts in British Columbia, Ontario and Nova Scotia in confirming the constitutional validity of such provincial budget measures.

Finally, the Court rejected the retailers' argument that the provincial budget measures which required retailers to maintain a register of retail sales made to Indians, verify the registration in the exemption program and produce a monthly declaration, caused undue hardship to retailers.

This decision underscores that neither the Constitution nor the exemption from tax in the Indian Act allow status Indian retailers to entirely refuse to participate in the tax system if they are selling to non-Indian consumers. Such retailers cannot gain a competitive advantage or avoid the administrative burden imposed by provincial governments by refusing to collect and remit taxes.

Case Information

Rice v. Agence du revenu du Québec, 2016 QCCA 666

Court File: 500-17-058614-101; 500-05-006143-943

Date of Decision: April 21, 2016

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