Tuccaro v. Canada, 2014 FCA 184
On July 25, 2014, the Federal Court of Appeal ruled that prominent First Nation entrepreneur David Tuccaro could advance a claim that he is immune from taxation under the terms of Treaty 8. The decision overturns a decision of the Tax Court of Canada that would have prevented such a claim from being asserted, and opens the door to revisiting the decision of the Federal Court of Appeal in the 2003 Benoit case, which had ruled against such a treaty right.
The Federal Court of Appeal also dismissed cross-appeals by the Crown, including in relation to the Crown’s argument that the Canada Revenue Agency’s “Indian Act Employment Income Tax Exemption Guidelines” are not relevant to an appeal in the Tax Court of Canada.
The decision opens the door to the potential establishment, for the first time in Canada, of a treaty right to tax exemption. It also allows an argument to be advanced that the principle of the Honour of the Crown is relevant to how Canada determines the tax liability of First Nation citizens.
In 1899, Treaty 8 was concluded between the Crown and several Cree and Dene First Nations of the Athabasca and surrounding areas, opening up vast territories to settlement and development by non-Aboriginal people in what is now northern Alberta, northeastern British Columbia, northwestern Saskatchewan and the southernmost portion of the Northwest Territories. The territory covered by Treaty 8, which is larger than all of France, includes what are now home to Canada’s oil sands.
While the written text of the treaty was silent in this regard, the Treaty Commissioners stated the following in their written report about the treaty negotiations:
Many were impressed that the treaty would lead to taxation and enforced military service…
We assured them that the treaty would not lead to any forced interference with their mode of life, that it did not open the way to the imposition of any tax, and that there was no fear of enforced military service. [emphasis added]
Notwithstanding this explicit language, beginning in the 1980s and 1990s, Canada began taxing Treaty 8 First Nation members, unless their property was subject to the exemption under s. 87 of the Indian Act, namely property that is situated “on a reserve.” A court case was brought by Gordon Benoit, Athabasca Tribal Council, Lesser Slave Lake Regional Council and Kee Tas Kee Now Tribal Council in 1992, seeking to enforce a constitutional right to be immune from taxation under Treaty 8, in the case of Benoitv. Canada.
After a lengthy trial, the Federal Court found, in 2002, that such a right had been made out. This decision was, however, subsequently overturned by the Federal Court of Appeal (2003 FCA 236) the following year, on the basis that the trial judge had made “palpable and overriding errors” in relation to the evidence in support of a treaty right, including in regard to the appreciation of the oral history evidence of elders. Leave to appeal to the Supreme Court of Canada was denied. This decision and its reasoning were subsequently much-criticised in the academic literature, especially as regards the treatment of elders’ oral history evidence and principles relating to treaty interpretation. A subsequent attempt to re-open the issue was unsuccessful: Dumont v. Canada, 2008 FCA 32.
In 2012, prominent First Nation entrepreneur David Tuccaro filed an appeal from CRA’s denial of his exemption from income tax. In his appeal, Mr. Tuccaro relied on both the s. 87 Indian Act tax exemption and, notwithstanding the decision in Benoit, his right to tax immunity under Treaty 8.
The Crown brought a motion to strike of Mr. Tuccaro’s Notice of Appeal, including his asserted Treaty 8 right to tax immunity. The Tax Court allowed the Crown’s motion in relation to the Treaty 8 issue, finding that the decisions of the Federal Court of Appeal in Benoit and Dumont were binding precedents and that this claim therefore stood no chance of success.
Other aspects of the claim were not struck, however, including Mr. Tuccaro’s argument that he had relied upon and organized his affairs in accordance with CRA’s “Indian ActEmployment Income Tax Exemption Guidelines.” On the basis of those Guidelines, his income would be tax exempt, he argued. The Crown countered that their own Guidelines were not binding and could not be argued in court. The Tax Court rejected that position, accepting that the principle of the Honour of the Crown could potentially operate to prevent the Crown from refusing to abide by its own published Guidelines.
Decision and Reasoning of the Federal Court of Appeal
In a unanimous decision, the Federal Court of Appeal ruled that the Tax Court judge committed a legal error in relying on the principle of “stare decisis” to determine that Mr. Tuccaro could not advance the Treaty 8 tax immunity claim as part of his tax appeal. The principle of stare decisis holds that a lower court is bound by the legal precedents made by a higher court to which the decisions of that lower court could be appealed.
Stare decisis, however, only applies to questions of law, the court noted. The decision in the Benoit case was held by the Federal Court of Appeal not to be a legal finding, but rather a factual one – namely that there was “insufficient evidence” to support the conclusion that the Aboriginal signatories to Treaty 8 had understood that they would be exempt from taxation. Accordingly, stare decisis had no application.
The Court went on to consider whether the principles of res judicata or issue estoppel would operate to bar Mr. Tuccaro from advancing the Treaty 8 tax immunity claim, as had been argued on the original motion. Those principles apply more broadly, to prevent matters from being re-litigated by the same party or their “privies” (those who stand in the place of a party). In this regard, Mr. Tuccaro had not been a party to the Benoit case, and the Crown had not lead any evidence that any of the other plaintiffs represented Mr. Tuccaro or constituted a privy for him. Accordingly, the Federal Court of Appeal ruled that res judicata and issue estoppel were not made out, and the appeal was allowed.
The Crown’s cross-appeal was dismissed. The Court of Appeal “was not persuaded that the Tax Court judge had committed any error in finding that ‘the Guidelines Argument, in the context of the Honour of the Crown argument, cannot be said to have ‘no chance of success’’.”
Mr. Tuccaro was awarded his costs.