Pilford Estate v. The Queen: Recent Supreme Court of Canada Jurisprudence Not Enough to Support a Claim for Tax Exemption under the Indian Act as Connections to Reserve Were Too Slim

Bill Innes on Current Tax Cases

http://decision.tcc-cci.gc.ca/en/2013/2013tcc181/2013tcc181.html#_ftn1 New Window

The Estate of Charles Pilford v. The Queen[1] (June 10, 2013) is one of seven Indian Act exemption decisions rendered since the Supreme Court of Canada broadened the exemption in Bastien Estate v. Canada[2] (Bastien was heard together with Dubé v. Canada[3]).  In essence Bastien and Dubé held that in order to be entitled to the exemption it was not necessary that the income-earning activity be “ integral to the life of the Reserve or to the preservation of the traditional Indian way of life.“  Similarly, the fact that the income-earning activity formed part of the “commercial mainstream” was only one factor and should not be given too much weight in the exemption analysis.

Of these seven cases, the taxpayers were successful in four[4] and unsuccessful in three[5].  Two of the taxpayer successes were in the Federal Court of Appeal while all three losses were in the Tax Court.

The facts in Pilford are summarized by the trial judge in the very first paragraph of the decision:

[1]            The late Charles Pilfold was a Status Indian. He fished for a living. His income in 2000 and 2002 arose mainly from fishing roe on kelp and herring roe, though the manner in which the income ultimately ended up in Mr. Pilfold’s hands was through various family held companies, all of which maintained their books and records on the Musqueam Reserve. The issue is whether the income in 2000 and 2002 is exempt from taxation due to the interplay between the Income Tax Act (the “Act”) and section 87 of the Indian Act. The Appellant’s position is that there are sufficiently strong connecting factors to place Mr. Pilfold’s business income situate on a Reserve: business decisions were made on-Reserve, corporate records were kept on-Reserve, part of the catch, being the trimmings, were donated to Reserves and Mr. Pilfold was resident on-Reserve. The Respondent’s position is that there are few, if any, substantial connecting factors to find the business income was property situated on a Reserve. The Respondent asked me to consider: Mr. Pilfold was not a full-time Reserve resident, the fishing equipment was kept and maintained off‑Reserve, the business activity itself was off-Reserve, the product was packed off-Reserve, the product was sold primarily overseas and most business decisions were made off‑Reserve.

The nub of the question before the court was did Mr. Pilford’s part-time residence at the Reserve and the presence of corporate records on the Reserve amount to sufficient connections with the Reserve to entitle him to an exemption from income tax by virtue of section 87 of the Indian Act.  Ultimately the court concluded that these connections were simply too slim:

[72]        As emphasized by Justice Evans in Robertson, with respect to business income, most weight must be attached to the business activity generating that income. Taking into account the off-Reserve planning and preparation, the actual fishing activity and the post-fishing processing and sales, and weighing that against the part-time residence of Charles Pilfold on the Musqueam Reserve, where the books and records of the Pilfold companies were kept, I conclude Charles Pilfold’s business income was not intimately connected to the Musqueam Reserve and therefore not eligible for exemption under the Indian Act.

 Although the appeal was dismissed, the court exercised its discretion not to award costs to the Crown since “the Appellant was right to see how the post-Bastien and Dubé test for location of property is to be applied”.[6]

This decision appears quite consistent with the other post-Bastien and Dubé jurisprudence.  The upshot of this seems to be that while Bastien and Dubé went a long way in expanding the entitlement to the Reserve exemption, taxpayers must still be able to demonstrate a substantial number of factors intimately connecting the income in question with the Reserve.

[1] 2013 TCC 181.

[2] 2011 SCC 38.

[3] 2011 SCC 39.

[4] Dickie v. The Queen, 2012 TCC 242 (CanLII) — 2012-07-10;  Dickie v. The Queen, 2012 TCC 327 (CanLII) — 2012-09-19  [Costs decision];  Canada v. Robertson, 2012 FCA 94 (CanLII) — 2012-03-20;  Ballantyne v. Canada, 2012 FCA 95 (CanLII) — 2012-03-20;  McDonald v. The Queen, 2011 TCC 437 (CanLII) — 2011-09-20.
[5] The Estate of Charles Pilfold v. The Queen, 2013 TCC 181 (CanLII) — 2013-06-10;  Assinewe v. The Queen, 2012 TCC 24 (CanLII) — 2012-01-18;  Marcinyshyn v. The Queen, 2011 TCC 516 (CanLII) — 2011-11-08.
[6]Note 1 supra, para. 74.