https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/459838/index.do
Morriseau v. The Queen (January 15, 2020 – 2020 TCC 5, Sommerfeldt J.).
Précis: The taxpayers, Mr. Morriseau and Ms. Smoke, carried on all of their employment activities in Winnipeg, and not on a Reserve. Their employer (which was either Tribal Councils Investment Group of Manitoba Ltd. (“TCIG”) or by one of its subsidiaries, Arctic Beverages Ltd. (“ABL”)) issued them T4slips for 2012 and 2013 indicating that their income was exempt pursuant to section 87 of the Indian Act. Subsequently, after discussions between TCIG and CRA, they were issued new T4 slips indicating that they were not exempt from tax under section 87. Mr. Morriseau and Ms. Smoke ultimately appealed the issue to the Tax Court.
The Tax Court concluded that the most significant factor in the case was that the employees performed all of their duties off-Reserve and did not have any overriding connections with a Reserve. Accordingly, their appeals were dismissed, but without costs (these were informal procedure appeals). However the Court made a strong recommendation to the Minister that she exercise her discretion under subsection 220(3.1) of the Income Tax Act to cancel any interest assessed in respect of the tax that was under appeal.
Decision: The Court found that this was a close case but that the fact that the employment duties were performed off-Reserve in Winnipeg weighed heavily against the tax exemption claimed:
[98] In these Appeals, I must weigh the facts that in 2012 and 2013 Mr. Morriseau and Ms. Smoke resided, performed their employment duties and were paid their respective salaries in Winnipeg against the fact that TCIG and perhaps ABL were resident on a reserve (although there was little evidence of any economic benefit flowing to the reserve from the presence of TCIG and ABL), the fact that benefits likely accrued to reserves by reason of ABL’s distribution of its products to First Nations entities and northern communities (although there was little evidence specifically linking such distribution to reserves) and the fact that ABL operated a breakfast program (although the evidence suggests that the program may have been undertaken by TCIG’s charitable foundation). In my view, the connecting factors indicating that the employment income of Mr. Morriseau and Ms. Smoke was earned in Winnipeg (i.e., not on a reserve) outweigh the connecting factors linking that employment income to a reserve. While this is a relatively close case, having regard to all the evidence, the place where Mr. Morriseau and Ms. Smoke performed their employment duties, i.e., Winnipeg, is the predominant connecting factor, tipping the scale toward a finding that the situs of their employment income was Winnipeg, and not on a reserve.
However the Court made a strong recommendation that the Minister forgive the interest on the tax under appeal in light of the confusing history of the matter:
[100] As explained above, [these Appeals were commenced in response to the confirmation of reassessments issued by the CRA in respect of amended T4 slips issued by TCIG several years after the taxation years in question. It seems that TCIG, apparently at the behest of the CRA, retroactively changed its position in respect of the taxability of the salaries paid by TCIG and ABL to their Indigenous employees in 2012 and 2013. Consequently, as I understand it, no income tax was withheld at source in respect of those salaries. In my view, if Mr. Morriseau and Ms. Smoke have not already paid the reassessed tax, it would create a significant hardship if they were to be required to pay arrears interest on that tax. I think that it would be appropriate in this case for the Minister to exercise her discretion, under subsection 220(3.1) of the ITA, in favour of Mr. Morriseau and Ms. Smoke, and cancel any interest that may have been assessed in respect of the tax that is the subject of these Appeals.
[Footnote omitted]
There was no order as to costs since this was an informal procedure appeal.