When the right to vote in federal elections was finally extended to status Indians in 1960, many First Nation leaders were concerned that this would lead to an erosion of treaty rights and legislative protections including, specifically, the protection from taxation and seizure of personal property under ss. 87 and 89 of the Indian Act.
Since 1850, legislation in Canada has in some form shielded the property of "an Indian" from taxation and seizure. These exemptions are borne from the Crown’s duty to protect First Nations from the incursions of First Nation property that marked the late 18th and early 19th century. They also form part of the complex web of arrangements with First Nations that are the basis of our shared existence within what has become Canada.
The concerns that representation would lead to taxation were warranted, particularly since the right of a status Indian to vote had since 1950 been conditional on executing a waiver by which the status Indian would surrender the right to be tax exempt. Explicit assurances had been given by the government, however, that these fears were groundless, and that "existing rights and treaties… possessed by the Indians, will not in any way be abrogated or diminished in consequence of their having the right to vote."
The fears of First Nation leaders have, however, been borne out. CRA and the courts have taken an increasingly narrow view of the scope of the exemption from taxation. Underpinning this narrowing of the exemption is the very rationale that First Nation leaders feared would come to pass: the view that First Nation peoples, in joining "mainstream" Canadian society, could no longer expect to enjoy the special "privileges" conferred upon them.
The onset of the erosion can perhaps be traced back to Williams, in which the Supreme Court of Canada endorsed a malleable "connecting factors" test for determining whether property is "situated on a reserve." This approach opened the way to a subjective and discretionary assessment by CRA and the courts, in which any connection between the property and the "outside world" has generally lead to the conclusion that the property is not "situated on a reserve."
The courts have grafted onto this "connecting factors" test a "commercial mainstream" filter, by which the exemption is limited to property that is of an "Indian nature" and relates to a "traditional way of life," despite the absence of such qualifiers in the legislation. When a status Indian engages in economic activity that is outside this so-called "traditional way of life," he or she is deemed to have entered the "commercial mainstream" and to have chosen, in effect, to renounce his or her rights and entitlements as a status Indian. He or she has chosen, by this logic, to be treated like "other Canadians" and should therefore pay tax "like other Canadians."
Such an approach evokes an ignominious past in which status Indians were involuntarily "enfranchised" and stripped of their status upon attaining a university degree or being admitted to a profession. It has its roots in the now-discredited policies of assimilation that sought to absorb First Nation peoples into "mainstream" Canadian society.
The Bastien Case
The "commercial mainstream" approach is applied most vigorously in the area of investment income, as first set out in Recalma, and as now re-affirmed in Bastien.
In Bastien, the taxpayer was a status Indian, a member of the Huron-Wendat nation, who had lived his entire life on the Wendake reserve. He engaged in the business of making and selling moccasins through a company that operated on reserve. The profits from the business were invested in the on-reserve "caisse populaire".
All the income's "connections" pointed to an on-reserve location, except for the fact that a majority of the caisse populaire’s investments were placed in Canadian and global capital markets. This factor was enough, the court ruled, to situate this property "off reserve" and therefore expose it to taxation.
This confirms an approach by which status Indians cannot participate in the Canadian or global economy without thereby renouncing their rights as status Indians. In the words of Megan O'Brien, the effect of this approach is "to reduce the 'protected reserve system'.... to a separate, ring-fenced, exclusively traditional economy…".
Leave to appeal to the Supreme Court of Canada has been sought and denied in several similar cases. It is hoped that the Court will see fit to hear a case in the near future in which the existing approach can be re-evaluated.