Dickie v The Queen, 2012 TCC 242

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Where is a Nomadic Aboriginal Business Located?

Dickie v The Queen, 2012 TCC 242

[Appeal to FCA dismissed Canada v Dickie, 2014 FCA 40]

The main issue was whether the business income of the taxpayer was exempt from tax as being person property situated on a reserve within the meaning of paragraph 87(1)(b) of the Indian Act, and therefore exempt under paragraph 81(1)(a) of the Income Tax Act.

The taxpayer operated a proprietorship from an Indian Reservation which he was a member and resident of. The business was clearing bush for off reserve oil and gas companies.  The CRA reassessed the taxpayer and included the business income as taxable income.

The taxpayer’s home contained the office of the business, the storehouse for his equipment – his administrative centre was his home address on the reserve.  However, 99% of the work was conducted off reserve.  He had over 140 workers (105 of which were aboriginal) and revenues of 3.4 million.  All but 0.3% of the revenue was sent via cheque to the on-reserve office.

The Court concluded that in determining the location of the business income, one must look at the relevant factors in light of the nature of the business, to see what factors ought to be considered and what relative weight they ought to be given.  The court also concluded that the factors relating to the “commercial mainstreamness” of the business activities, their competing with “non-aboriginal businesses”, or their “contribution to life on a reserve” were irrelevant factors.

Paragraph 81(1)(a) of the ITA exempts from income any amount that is declared to be exempt from income tax by any other enactment of Parliament (including the Indian Act).

The Crown argued that the location of where the work is performed is determinative, while the taxpayer argued that the location of his business on the reserve is important – the centre of management –  (not where his workers render the service).

The Court noted that there is no dispute that business income of the taxpayer if intangible property that is personal property of an Indian.  The court referred to the test applicable, being the “connecting factors test”, as enunciated by the SCC in Williams v. Canada, 1992 CanLII 98 (SCC), [1992] 1 S.C.R. 877 and confirmed recently by the SCC in Bastien Estate v. Canada, 2011 SCC 38 (CanLII), 2011 SCC 38, [2011] 2 S.C.R. 710 and Dubé v. Canada, 2011 SCC 39 (CanLII), 2011 SCC 39, [2011] 2 S.C.R. 764.

In identifying the relevant factors and the weight to be given to those factors that connect property to the reserve, one must look at: (1) the purpose of the exemption; (2) the type of property; and (3) the nature of the taxation of that property.

The purpose of the exemption is to guard against the possibility that one branch of government, through the imposition of taxes, could erode the full measure of the benefits given by the federal government, and NOT to “not to remedy the economically disadvantaged position of Indians by ensuring that [they could] acquire, hold and deal with property in the commercial mainstream on different terms than their fellow citizens” (Michelle v Peguis Indian Band, [1990] 2 SCR 85 at page 131 in Dickie). The court also noted that one must be careful not to elevate the commercial mainstream character of the activity as a factor of determinate weight in determining the location of the property.

The Type of the property is business income and is the type of property taxed on the basis of profits as contemplated under subsection 9(1) of the ITA.  There are a number of factors that go into determining “profit”.

The factors relevant in connecting business income to the reserve are sent out by reference to a number of decisions, and include:

  • the type of business and location of business activities
  • the location of the customers of the business and where payment was made
  • the residence of the business owners
  • where decisions affecting the business are made
  • place where the books for the business are kept; and
  • the nature of the work and the commercial mainstream.

The court said that the type of business is the clearing of bush for oil and gas companies, which is analogous to a construction business. The business is nomadic in that the projects are all undertaken off-site at various locations outside the offices and headquarters, but the work sites do not have a physical or permanent base for the business.

The court stated that looking at the location of the management or the location of the labour is too narrow an outlook, and all relevant components of a business must be examined in light of the nature of the business.

There was no contention that the majority of the 3.4 million of revenues was obtained from off-reserve work and that the majority of the 2.8 million in expenses was incurred off-reserve.  The court stated that in a nomadic business one performs the services where the job is, and given this nature of the business, the location of the services cannot be the basis for determining the location of the business.  Also, in this case, the managerial activities were much more than merely incidental to the business as “[t]he Appellant negotiated his contracts from the Reserve office, completed pre-qualifying questionnaires for the potential customers in order to qualify for the bidding process with them, undertook marketing activities such as meeting with prospective clients at band-arranged “meet and greets” and prepared and kept updated a business portfolio for such potential customers there, received employee inquiries and the qualifying material from prospective employees at the Reserve and kept lists as well as arranged to assemble and hire employees for each project from the Reserve”.  Thus, the managerial duties are a significant and essential part of the business operations.

On  the evidence, the court concluded that the labour activities and capital components are indertminative of the issue given the nature of the business, but that the managerial component was highly indicative of the location of the business activities on the reserve.

The court also commented on the location of the customers, and stated that the fact that all but one customer was located off reserve was not determinative in this case as the parties corresponded mainly by electronic means and given the nature of the business being the performance of work at different sites none of which was the head office of any of the clients. The court said that the preceding is neutralised by the fact that almost all payments were received on reserve – though it commented that in the electronic world, those factors are of little use in determining the location of a business.

The Crown had made assumptions that “(o) the appellant conducts the business in commercial mainstream competing with non-aboriginal businesses, and (q) the business is not integral to the life on an Indian reserve”.  The court stated that in light of the SCC dicata in Southwind, supra, these assumptions don’t have to be rebutted by the taxpayer.  The court noted that “commercial mainstream” is a misnomer, and the actual factor is “competition with non-aboriginals”, and that this factor remains irrelevant in the analysis.

The other factors – the residence of the owners, the location where decisions affecting the business are made, and where the books of the business are kept – all pointed strongly towards the reserve as the location of the business.

– Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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