SPOTLIGHT ON Aboriginal Rights
TAXATION and Related Issues
For Immediate Release
Ottawa, March 14,2002 - The Supreme Court of Canada today refused to hear an appeal by Native Leasing Services which sought to resolve a seven year dispute with Revenue Canada over the tax status of First Nations people who work off-reserve for an employer headquartered on-reserve.
The National Chief of the Assembly of First Nations, Matthew Coon Come, stated he accepts the Supreme Court's decision but noted that Canada still has to deal with the issues surrounding taxation and aboriginal and Treaty rights.
"These issues are not going to go away," said the National Chief. "The recent Federal Court decision in the Benoit case clearly articulates the Crown's duty and responsibilities regarding taxation of First Nations. The honour of the Crown and its agents is at stake, and Canada must recognize our rights as enshrined in the Canadian Constitution, the highest law in the land. First Nations never surrendered their nationhood and autonomy to the Crown. We are covered by international covenants - nation-to-nation agreements - that provide us protection and immunity from taxation by another nation. The most positive and efficient way to give life to these rights is for Canada to sit down with First Nations and start talking about implementing our rights."
"We are disappointed but certainly not defeated," said Roger Obonsawin, whose company Native Leasing Services (NLS) and employees filed and financed the court costs. "We have our legal documents ready to go back to court for them to reconsider the Shilling case in light of these events."
Mr.Obonsawin urged all members of First Nations to continue claiming tax exemption if their employer is located on the reserve. The Supreme Court had been asked to hear an appeal that could overturn an Appeal court decision allowing taxation of Aboriginal persons working off-reserve for on-reserve employers. "Today's decision pushes the issue of the taxation of First Nations people back to the lower courts", he said.
In 1995, Rachel Shilling, along with three other employees of Mr. Obonsawin's company, sought protection through the Indian Act. Ms. Shilling's case eventually became the lead case as she challenged Canada Customs and Revenue Agency guidelines. Ms. Shilling asserts that she should not have to pay taxes on her employment income because she is a Status Aboriginal working off-reserve for an employer working on-reserve.
"The Canadian government's unilateral new guidelines drafted in 1995 were wrong in every sense," said Mr. Obonsawin. "They were wrong in law and in the process whereby they came into being. There was no real consultation with First Nations as originally promised by the federal government."
Native Leasing Services (NLS) is a self-supporting network providing training and skills development to more than 1000 First Nations people across Canada, with the vast majority being sole-support mothers. NLS "leases" employees to 159 clients in nine provinces and one territory. The objective is to provide Aboriginal people with employment and benefits, linking them with productive jobs across the Canada.
Resolving the tax status of Aboriginal people is critical to their economic and social well-being, Mr. Obonsawin said. Three other test cases involving NLS employees that were agreed upon earlier by the Government of Canada will all proceed. The NLS is now pressuring the Government of Canada to withdraw guidelines it implemented in 1995.
"The Indian Act reaffirmed aboriginal and treaty rights by protecting the small land bases we occupy as well as our properties on reserve. These provisions include protection from taxation, now reflected in Section 87 of the Indian Act," explained Mr. Obonsawin. "Unfortunately Revenue Canada is constantly looking for loopholes to get out of Canada's agreements with Aboriginal peoples."
Leslie Pinder, the lawyer representing Ms. Shilling and the other NLS employees, worries about the broad range of discretion available to Canada's tax officials when reviewing tax returns. "The guidelines can be applied in a manner which seeks to limit and restrict Native people's special rights," states Ms. Pinder. "The taxation exemption is a constitutional right, not a tax dodge. The Government of Canada cannot extinguish Aboriginal Rights without the informed consent of Aboriginal people."
"Our First Nations people should know this fight is not over," repeated Mr. Obonsawin. "The law concerning the tax exemption for Aboriginal people contained in the Indian Act will continue to be in a state of chaos until we get a definitive ruling from another court."
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The Shilling Case and Protecting Aboriginal Tax Exemption
In 1995, Rachel Shilling, along with three other employees of Native Leasing Services (NLS) sought protection of her property through the Indian Act and challenged Canada Customs and Revenue Agency (CCRA) guidelines. Ms. Shilling, whose case became the lead test case, argued that she should not have to pay taxes on her employment income because she is a Status Aboriginal working off-reserve for a reserve-based employer.
Tax exemption is not a tax loophole but a constitutional right of Aboriginal people, reflected in Section 87 of the Indian Act. In this section, properties on-reserve are protected, including the small land bases occupied by Native people. Proponents of Ms. Shilling's case argue that the federal government is violating the law.
According to Roger Obonsawin, President of Native Leasing Services, the guidelines are being applied in a manner which seeks to restrict Native people of their special rights. "The Government of Canada cannot extinguish Aboriginal rights without the informed consent of Aboriginal people."
The Impact on First Nations People
Resolving the tax status is critical to the social and economic well-being of Aboriginal communities because tax exemption helps them to rebuild their economies. The urban Aboriginal population is in crisis concerning homelessness, unemployment and health issues. Compared to the current system of handouts, tax exemption is a more empowering option - serving as an incentive for Native people to be productive and reintegrated into the work force.
The Shilling case has profound national significance on Aboriginal people. Its success thus far can be attributed to the full support it receives from the NLS, representing a self-supporting network of more than 1000 First Nations people across Canada who believe strongly in their Aboriginal rights. The prime beneficiaries of the Shilling case are sole-support mothers, who form the majority of NLS employees. Many single parent Aboriginal women leave the reserve to pursue better jobs for their children's security.
Companies such as the NLS play an important role in the economic viability of Aboriginal communities. Located on the Six Nations of Southern Ontario's Grand River Territory, the NLS provides employment training and skills development for its members. Through the enforcement of Aboriginal and treaty rights for the off-reserve population, the NLS has been able to attract quality employees.
The NLS vows to continue supporting Ms. Shilling and her court case despite the uncertainty and intimidation tactics adopted by the CCRA. "The Canadian government is trying to find its own loopholes to terminate our Aboriginal and treaty rights and they are prejudicing the public in the process," said Mr. Obonsawin. "Our First Nations people should know this fight is not over."
The Indian Act and Tax Exemption Provisions
Since 1850, similar clauses were included in the first and all subsequent versions of the Indian Act.
Indian Act s. 87:
a) the interest of an Indian or a band in reserve or surrendered lands; and,
b) the personal property of an Indian or band situated on reserve
2) No Indian or band is subject to taxation in respect of the ownership, occupation, possession or use of property mentioned in paragraph (a) or (b) or is otherwise subject to taxation in respect of any such property."
In June 1994, Revenue Canada issued Guidelines regarding the Indian Act Exemption for employment income. Revenue Canada clearly states in the Introduction:
"The Guidelines are not intended to apply when it can reasonably be considered that one of the main purposes for the existence of an employment relationship is to establish a connecting factor between the income in question and a reserve."
The following chronology sets out milestone events related to the court challenge that the O.I. Group of Companies (O.I.) through Native Leasing Services (NLS) and its employees has been engaged in since 1995. Owned by Roger Obonsawin, NLS is a network representing more than 1000 First Nations employees and is located on the Six Nations of the Grand River Territory in Southern Ontario.
The chronology dates back to 1983 when the Supreme Court of Canada confirmed that a Status Indian has the right to earn a tax-free income provided that their employer is based on a reserve.
1983 The Nowegijick Decision - Eugene Nowegijick from the Gull Bay Reserve in Northwestern Ontario went to court arguing that his employment income be "protected" from taxation. Mr. Nowegijick worked off-reserve in a pulp-cutting operation owned by the Gull Bay Development Corporation but received his paycheck from the reserve-based company. The Supreme Court of Canada sided with Mr. Nowegijick's case and agreed that his "personal property" as defined in Section 87 of the Indian Act included his employment income. Since the Indian Act only specified tax exemptions for personal property located on-reserve, Revenue Canada issued a remission order to include tax protection for Aboriginal people living and working on-reserve. This interpretation is an amendment not reflected in the Indian Act.
1987 O.I. Employee Leasing Inc. and Native Leasing Services established.
1991 Revenue Canada audits O.I. and NLS, confirming the former as the employer of record for leased staff and that the company "runs a clean operation".
1992 The Williams Decision - The Supreme Court of Canada rules that Glen Williams, a member of the Penticton Indian Band receiving income off-reserve, should not pay taxes on his Employment Insurance benefits even though he paid premiums based on an on-reserve payroll.
1993-94 Revenue Canada uses the Williams decision to define and interpret Section 87 of the Indian Act for employment income and the ability of a Status Indian to exercise their tax exemption rights.
Revenue Canada undertakes a selective and marginal "consultation" with First Nations and Aboriginal interests regarding revisions to the guidelines.
1994 Revenue Canada unilaterally changes the guidelines and inconsistently administers them when interpreting the income of Status Indian leased employees.
December 1994 Group of Aboriginal people occupies Revenue Canada offices in downtown Toronto to protest amongst other issues Revenue Canada's revised guidelines.
January 1995 Revenue Canada and the O.I. "agree to disagree" regarding the revised guidelines and are in agreement that the matter needs to be placed before the courts. Deputy Minister of Revenue Canada Pierre Gravelle commits to expediting the matter before the courts.
Spring 1995 The Shilling Case - O.I. prepares for court action and confirms with Revenue Canada that it will advance a series of four test cases for consideration by the courts. Rachel Shilling and three other NLS employees challenge tax guidelines in court. Ms. Shilling works for an employer located on-reserve even though her work is primarily performed off-reserve.
1995-99 A long and protracted series of legal procedures occur that can be considered tactics by Revenue Canada officials to avoid fulfilling the Deputy Minister's agreement.
While the matter is still before the courts, Revenue Canada agrees that leased employees would be encouraged to file regular income tax returns and file Notices of Objection if they are reassessed. However, Revenue Canada officials pursue collection action as well as harassment of spouses and families of leased employees.
Court costs have mounted considerably and for the first three years of the litigation, O.I. covers all costs associated with the court action. In 1998, a decision is made to charge a 1.5% fee to all Status Indian leased employees to help defray the legal costs. All monies related to the court action are placed in the Aboriginal and Treaty Rights Defence Fund. O.I. contributes $5.00 toward each $1.00 contributed by the employees.
O.I. and NLS lawyers work closely with government lawyers to reach an agreed "Statement of Facts". By late 1997, they agree to a "question of law". However, government lawyers withdraw their agreement on the question of law and insist on a full trial. In response, O.I. opts to have the court appoint a "prothonotary" (a judicial officer of the Federal Court with defined authorities) to help the parties reach an agreement on how to proceed. The prothonotary was unable to resolve the matter. O.I. subsequently appears before two judges who worked with the parties to guide the process which led to an actual question of law addressed to Judge Karen R. Sharlow of the Federal Court in March 1999.
Despite the commitment from the Deputy Minister of Revenue Canada in January 1995 to "expedite" the matter before the courts, considerable effort was required and expended to move beyond the pre-trial proceedings to get the case before a judge.
May 1999 Ms. Shilling's case eventually becomes the lead test case for the Supreme Court and proceeds to trial. In defence of their actions, Revenue Canada (the former Canada Customs and Revenue Agency) states to the public and to politicians that they were simply "closing a tax loophole".
June 10, 1999 In an official Order, Judge Sharlow confirms that Ms. Shilling is "entitled by operation of Section 87 of the Indian Act to exemption from income tax with respect to the salary paid to her by Native Leasing Services.
September 1999 The federal government appeals the Shilling decision.
June 21, 2000 An "Abuse of Power" class action lawsuit naming federal ministers and senior bureaucrats is filed by Roger Obonsawin and Joe Hester on behalf of all leased staff against the federal government. Mounting evidence throughout the pre-trial procedures suggests that the government has not been forthright or fair in litigating the Shilling case. OI and NLS are forced to deal with an unequal political and bureaucratic environment. While the courts are always an option to challenge government policy and direction, it is a long and expensive undertaking.
April 2001 The Shilling decision is placed before the Federal Court of Appeal.
June 4, 2001 Order of the Federal Court of Appeal finds that Ms. Shilling is not entitled by operation of Section 87 of the Indian Act to exemption from income tax. They cite insufficient evidence as the reason they could not rule in her favour.
September 2001 Application for Leave to Appeal is filed with the Supreme Court of Canada
The cost to litigate is long, frustrating and extremely expensive. To-date, O.I. and its employees have committed in excess of $1.5 million. The struggle is not over. There may be many years ahead before there is a final resolution to this matter.
March 2002 The Gordon Benoit Decision - Judgment is rendered on the Benoit Court Challenge. Mr. Justice Douglas Campbell of the Federal Court declares that oral promises are part of treaty terms. This decision reaffirms tax exemption as a right which flows from Treaty 8.
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