http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/31274/index.do 
Murrary v. The Queen[1] (August 20, 2013)
[1] Mr. Murray is a status Indian and a member of the Mohawks of Kanesatake First Nation in Quebec.
[2] In 1993, Mr. Murray opened an office supply store on the Kanesatake reserve, doing business as Produits de Bureau MTC.
[3] In 1995, the federal government decided to privatize 17 of its office supply stores. Mr. Murray acquired one of these stores in Gatineau.
[4] In 1996, the federal government implemented the Aboriginal Business Procurement Policy (the ABPP), the purpose of which was to increase the participation of Aboriginal business in the procurement process by encouraging and, in certain situations, requiring federal departments and agencies to grant contracts to Aboriginal businesses.
[5] During the period in question, the 2001, 2002 and 2003 taxation years, Mr. Murray was the sole shareholder and director of the companies The Mohawk Trading Company Inc. / La Compagnie de Commerce Mohawk Inc. (MTC) and Mohawk Contract Furniture Inc. / Les Meubles de Bureau Mohawk Inc. (MCF). MTC sold office supplies and MCF, office furniture. The primary places of business of both companies were in Gatineau.
[6] Because of Mr. Murray’s business sense and incentives offered through the ABPP to Aboriginal businesses, MTC and MCF became successful and reached sales levels that surpassed all expectations.
[7] Mr. Murray received management fees from the companies at the end of each fiscal year. The amount of the management fees Mr. Murray received was equal to the retained earnings of the companies, namely, profits minus personal expenses incurred by the companies for Mr. Murray.
[8] Mr. Murray argues that the management fees received were only for the work he carried out on the reserve. He submits that the management fees are located on the reserve. As a result, pursuant to his Indian status, he did not have to pay taxes on these fees, which could be considered property. As for the personal expenses paid by the companies, he submits that he cannot be assessed on personal taxable benefits received when the amounts that constituted these taxable benefits were tax exempt.
[9] The Minister of National Revenue (the Minister) notes that the exemption provided under the
Income Tax Act (ITA) and the
Indian Act (IA) does not apply to the management fees. As for the taxable personal benefits conferred by MTC and MCF, the Minister submits they were rightly included in the calculation of Mr. Murray’s income.
ISSUES
[10] Were the management fees Mr. Murray received from MTC and MCF for the 2001, 2002 and 2003 taxation years, under the combined application of section 87 of the IA and section 81 of the ITA, tax exempt as personal property situated on a reserve?
[11] Were the amounts included in the calculation of Mr. Murray’s income as taxable benefits also tax exempt as personal property situated on a reserve?
[12] Were the penalties imposed by the Minister for the late filing of tax returns for 2001 and 2002 warranted?
The court analyzed all of the traditional factors in determining a reserve-based tax exemption. In addition, the appellant raised two novel arguments. The first dealt with the Aboriginal Business Procurement Policy (ABPP) which allowed him to open his store in Gatineau:
[86] The ABPP is not a connecting factor in this appeal.
[87] The ABPP policy established by the Treasury Board aims to encourage the development of Aboriginal businesses by increasing their share of the contracts entered into with federal departments and organizations. This is a policy that appeals to the federal government procurement system to help Aboriginal businesses expand. Under it, federal departments and organizations are required to set aside orders for Aboriginal businesses if the goods and services are destined for Aboriginal populations and if their value is greater than a given threshold. In cases where the goods and services are not destined for Aboriginal populations, the policy allows for setasides; in these cases, the departments can set aside orders for the Aboriginal businesses, but it is not mandatory. That being said, departments are encouraged to participate and must establish objectives with regard to this policy. In the present appeal, the companies bid on setasides, since the products sold by MTC and MCF were not destined for Aboriginal markets.
[88] According to the policy, it is not essential for the setaside bidders to be situated on a reserve. The ABPP does not require that the goods be sold on a reserve or for the income from these goods to be generated on a reserve.
[89] Additionally, Mr. Murray’s claim disregards the corporate and legal reality of the companies. It was the companies that bid on the contracts under the ABPP, not Mr. Murray. The companies are legal vehicles and have a character that is different from that of their shareholders and directors. Mr. Murray, as the companies’ shareholder, cannot rely on the ABPP, even if it connected the companies’ income to the reserve. The companies’ profits are not legally equivalent to the management fees and benefits conferred on Mr. Murray; their tax treatment is different.
The second point was the operation of section 90 of the IA:
[95] Subsection 90(1) of the IA provides for a presumption under which certain property, in certain circumstances, are situated on a reserve:
90. (1) For the purposes of sections 87 and 89, personal property that was
(a) purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands, or
(b) given to Indians or to a band under a treaty or agreement between a band and Her Majesty,
shall be deemed always to be situated on a reserve.
[96] The words “
Indian moneys” is defined as follows at section 2 of the IA:
“Indian moneys” means all moneys collected, received or held by Her Majesty for the use and benefit of Indians or bands.
[97] In the present appeal, for paragraph 90(1)(a) of the IA to apply, Mr. Murray must show that the management fees and advantages conferred were purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands. My view is that paragraph 90(1)(a) does not apply in the present appeal.
[98] First, Mr. Murray did not submit any evidence that the money used by the federal departments and agencies to purchase the office supplies and furniture was “Indian moneys” according to the definition at section 2, namely moneys collected, received or held by Her Majesty for the use and benefit of Indians or bands.
[99] Second, no evidence was submitted during the hearing showing that the moneys were appropriated by Parliament for the use and benefit of Indians or bands pursuant to the ABPP. The ABPP is a Treasury Board policy that encourages federal departments and agencies to participate in the development of Aboriginal businesses by purchasing from these businesses. There is no mention in this policy that moneys had been voted by Parliament for the purposes of the ABPP. Considering the lack of such evidence, it is logical to assume that the amounts the federal departments and agencies used to purchase the furniture and supplies from the Aboriginal businesses were amounts that were part of the “existing” budget envelope of these departments and agencies.
Having dealt with those two arguments the court went on to conclude that based on the traditional jurisprudential test, the management fees and benefits assessed against the appellant were not situate on a reserve and dismissed the appeal:
[109] The only connecting factors between Mr. Murray and the reserve are the companies’ head offices, which are situated on the reserve, the fact Mr. Murray is the owner of the ancestral house situated on the reserve and the fact the companies operate an office supplies store on the reserve in a building owned by Mr. Murray. The first two connecting factors are not determinative, because they do not determine the location of the property.
[110] With regard to the business establishment situated on the reserve, unfortunately, aside from Mr. Murray’s testimony alleging that he spent 25% of his time on the reserve performing management activities, which is challenged by the respondent, there is no record or description of the on-reserve activities. I cannot make any determinations about time or finances with regard to Mr. Murray’s on‑reserve activities. Testimony by his sister Ginette and his wife would surely have been useful here. I also cannot determine whether the management fees are partially from the store situated on the reserve since the income from this store does not seem to be included in the companies’ financial statements. Therefore, in the light of the evidence, it is impossible for me to conclude that part of the management fees were generated on the reserve.
[111] During the hearing, Mr. Murray said that it was “by design” that he received management fees only for the management activities performed when he was present on the reserve, and he submitted that the Canadian tax law allowed him to organize his business in such a way as to minimize his taxes.
[112] I cannot agree with this argument. As I mentioned above, Mr. Murray’s testimony indicates that he created an economic fiction that does not correspond to factual reality; this allowed him to obtain a tax-exempt income under section 87 of the IA. In this appeal, the only issue to address was whether the management fees and amounts representing the benefits conferred on Mr. Murray were situated on a reserve pursuant to the method stated by the Supreme Court of Canada in
Bastien Estate.
[113] Regarding the penalties for late filing, they are maintained, because Mr. Murray neglected to file his tax returns for 2001 and 2002 within the prescribed timelines.
[114] In the light of these reasons, the appeal is dismissed for the 2001, 2002 and 2003 taxation years, with costs.
[1] 2013 TCC 253.