Section 87 of the Indian Act, R.S.C. 1985, c. I-5 can exempt the property of First Nation individuals and bands from taxation.  For obvious reasons, this exemption can provide very valuable benefits to First Nation individuals, bands, and their businesses.  Unfortunately, it can be difficult to determine when the exemption applies, and the Canada Revenue Agency (“CRA”) frequently challenges the application of the exemption.

This article briefly describes the section 87 exemption, and discusses the test to determine whether it applies to intangible personal property, such as income.  The article also discusses recent cases where the exemption was found to apply to commercial fishing income. 

The Basics of the Indian Act Tax Exemption

Section 87 of the Indian Act provides the following:

87. (1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province … the following property is exempt from taxation:  
(a) the interest of an Indian or a band in reserve lands or surrendered lands; and
(b) the personal property of an Indian or a band situated on a reserve.
(2) No Indian or band is subject to taxation in respect of the ownership, occupation, possession or use of any property mentioned in paragraph (1)(a) or (b) or is otherwise subject to taxation in respect of any such property.

The exemption is relevant to a band or an “Indian”, as that term is defined in the Indian Act.  An Indian is an individual who is registered as an Indian under the Indian Act or is entitled to be so registered.  Such individuals are commonly called “Status Indians”.

The exemption applies to a band’s or Indian’s interest in reserve lands and surrendered lands, which generally can be determined without much difficulty.  The exemption also applies to a band’s or Indian’s personal property situated on reserve.  This part of the exemption can be difficult to apply in practice.

Personal property includes obvious items like a car, boat, or clothing.  It also includes intangible personal property such as income.  For example, the income from business, employment, investments, Employment Insurance benefits, etc. is personal property that is potentially exempt from both federal and provincial taxation. 

The problem is that it can be very difficult to determine when intangible personal property, like income, is situated on reserve and thus eligible for the Indian Act tax exemption.  For example, consider a Status Indian who engages in commercial fishing.  The individual may live on reserve, store his boat and equipment on reserve, and store or process the fish he catches on reserve.  However, the individual catches the fish off-reserve and sells the fish to off-reserve businesses.  In such circumstances, is the income from commercial fishing situated on- or off-reserve? 

In Williams v. Canada, [1992] 1 S.C.R. 877, the Supreme Court of Canada created a test to determine whether intangible personal property is situated on- or off-reserve.  First, you must identify all the relevant factors that connect the property to a location.  Such connecting factors may include the residence of the payor of the income, the residence of the Status Indian receiving the income, the place the payment is made, the place where activities take place that give rise to the income, etc.  Second, you must analyse the connecting factors purposively in order to give the proper weight or value to each factor.  Such an analysis considers the purpose of the exemption, the type of property in question, and the nature of the taxation of that property.  If connecting factors in terms of number and weight lean toward the reserve, the property is considered to be situated on reserve and vice versa.

If you think the above test is confusing and unclear, you are in good company.  Justice Cromwell of the Supreme Court of Canada wrote the following in the Bastien Estate v. Canada, 2011 SCC 38 case:  “While this search for location may seem at times to be more the stuff of metaphysics than of law, the attribution of location is what theIndian Act provisions require”.  The difficulty in application means that you often have to wait until a court case involving a certain type of income is decided to know how and when the section 87 exemption will apply to that type of income.

Commercial Fishing Income

Commercial fishing is an important source of employment and business income for First Nations right across Canada.  Two recent Federal Court of Appeal cases are of great importance to any band or Status Indian that engages in commercial fishing.  The cases can be used to argue that commercial fishing income is situated on reserve and exempt from tax even if the actual fishing and many other activities take place off-reserve. 

Canada v. Robertson, 2012 FCA 94 involved two Status Indians (Mr. Robertson and Mr. Saunders) who earned business income from commercial fishing.  Mr. Robertson lived on reserve, and Mr. Saunders lived off reserve.  They both maintained their boats on reserve.  They fished on lakes that were located off-reserve but near to it and within their band’s traditional fishing grounds.  Mr. Robertson and Mr. Saunders dressed the fish they caught off-reserve and took their catch to packing stations run by their band’s co-operative (“Co-op”) that were off-reserve. 

The Co-op turned out to be a key connecting factor.  Nearly all the Co-op members lived on reserve.  The Co-op employed about 160 band members all of whom lived on reserve.  The Co-op purchased fish from its members, like Mr. Robertson and Mr. Saunders, as the agent of a federal Crown corporation called Freshwater Fish Marketing Corporation (“Freshwater”).  In addition to acting as a purchasing agent, the Co-op divided fishing quotas, provided boat loans, coordinated the payment of the fishers’ helpers, and sold gas, oil and fishing gear.  It is clear the Court considered the Co-op to be an important institution on the reserve.

Another key connecting factor was the importance of commercial fishing to the band.  The Court found that commercial fishing had great traditional and current importance to the band’s way of life.

The Court did not give much weight to the connections to markets off-reserve.  The Court largely disregarded the fact Mr. Robertson and Mr. Saunders sold their catch to Freshwater through the agency of the Co-op, that Freshwater was an off-reserve business, and that it sold all the fish off-reserve.  The Court pointed out that the price received by Mr. Robertson and Mr. Saunders from Freshwater was largely determined prior to the fishing season, and Freshwater’s sale of the fish off-reserve had little impact on the price received by Mr. Robertson and Mr. Saunders. 

In the end, the Co-op and Mr. Robertson’s and Mr. Saunders’ interactions with it were the most important factors.  Justice Evans stated the following in his reasons:

It is clear from the evidence that although the Appellants were aware that the fish they caught were eventually taken by Freshwater and sold to its customers off-reserve, all their business dealings were with the Co-op.  From the perspective of the fishers, the Co-op bought their fish and paid them for their catch. … As the Supreme Court has stated in other Aboriginal rights contexts, the Aboriginal perspective is always important … .  On the basis of these facts, I am satisfied that the business activities of the Appellants associated with their fishing business are situated on Reserve.

The decision in Ballantyne v. Canada, 2012 FCA 95 was released at the same time as the decision in theRobertson Case.  The Ballantyne case involved facts highly similar to the Robertson case, and the Court came to the same conclusion that the commercial fishing income was situated on reserve and thus exempt from tax. 


The Robertson and Ballantyne cases demonstrate that commercial fishing income can be exempt from tax even if the income has connections to off-reserve activities.  The cases may also be helpful in demonstrating that fishing related employment income is exempt from tax. 

The Robertson and Ballantyne cases are part of a recent group of cases that have gone in favour of Status Indian taxpayers.  In the Bastien and Dube v. Canada, 2011 SCC 39 cases, interest income from term deposits from an on-reserve financial institution was held to be exempt from tax.  In Dickie v. Canada, 2012 TCC 242, business income from a proprietorship was held to be situated on reserve and exempt from tax even though much of the actual work done by the business occurred off-reserve.

Despite the recent wins, Status Indian taxpayers need to be careful when relying on the Indian Act tax exemption.  As mentioned above, the exemption can be hard to apply.  Also, the CRA continues to fight to narrow the exemption.  For example, the Dickie case has been appealed to the Federal Court of Appeal, and the CRA continues to routinely audit high net worth Status Indians who are relying on the exemption.