Pelletier v. The Queen, 2009 TCC 358

Federal Court of Appeal

Ottawa: July 3, 2009

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In Pelletier, the appellant claimed his logging business income was exempt from taxation by operation of section 87 of the Indian Act, which provides that the property of an Indian situated on a reserve is exempt from taxation. The business carried out logging on behalf the appellant's Band, the Red Rock First Nation, on Crown land near but not on the reserve. The Band had previously carried out the logging operations, in exercise of cutting rights allotted by the provincial government, before contracting with the appellant to carry out the cutting on the Band's behalf.

The evidence was that most of the workers were status Indians, and that the business' mandate from the Band included the training of Band members in the logging industry. The books and records of the business were maintained on reserve; the office work was conducted on reserve, and equipment was from time to time stored and repaired on reserve.

The Court considered and applied the “connecting factors” test to determine the location of the property in question. In this regard, the court examined the eight factors identified by the Federal Court of Appeal in Southwind v. Canada as relevant to locating business income for the purposes of s. 87 of the Indian Act, namely: the location of the business activities, the location of the customers, the place where the decisions affecting the business are made, the type of business and the nature of the work, the degree to which the business is in the commercial mainstream, the location of a fixed place of business and of the books and records, and the residence of the owner of the business.

The Court concluded that the appellant's logging business income did not qualify as property situated on a reserve and therefore was not exempt from taxation. Referring to an inter vivos trust that had been established on the advice of the appellant's accountant, the Court intimated that the business arrangements of the appellant as an attempt at manipulation and abuse, and ultimately found "no basis on which it could conclude that to tax that income would in any way erode Mr. Pelletier`s enjoyment of property held by him qua Indian; it would simply put him on the same footing commercially as all the non-Indian logging contractors with whom he competes in the commercial mainstream of Northern Ontario".

Accordingly, the Tax Court dismissed the appeal from the reassessment.