Tax exempt status challenged

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A court decision returning millions of dollars taxed from Native unemployment insurance payments is being used to end income tax exemptions for status Indians.

In a letter to bands and political organizations, Revenue Canada announced after 1993 Natives will no longer be protected if the work that generated the income is not done on-reserve.

The decision reverses a 10-year policy of not collecting tax from status Indians working for reserve-based employers even though the work was done off First Nations land.

"The principal factor connecting income to a reserve will now be where the duties are carried out," Dennis Lefebre, an assistant deputy minister at Revenue Canada, said in

a letter to Native organizers.

"The locations of the employer will continue to be a factor, but other factors connecting the income to the reserve will also have to be present for the income to be tax exempt."

The policy shift is based on the so-called Williams case where the Supreme Court of Canada ruled UI benefits tax exempt if they were derived from work done on reserve.

While the Williams decision has resulted in refunds to status Natives, it has also been used in a handful of lower court rulings to start taxing income.

No estimates are available on how much money the new tax regime will bring to Ottawa. But Ross Tunnicliffe, a Vancouver-based Native tax lawyer, said the decision will have far-reaching implications for all Native businesses.

"Any kind of Indian employer is going to have to examine their business structure," he said. "It has converted something that was very clear, black-letter law. Now it's grey."

Revenue Canada has been targeting Native income and has taken several cases to court in the last few years in an attempt to have the 1983 Norwegijick ruling overturned, Tunnicliffe said. That ruling liberally interpreted the Indian Act tax exemptions and formed the basis of Native tax policy for the last 10 years.

Native leaders have taken a dim view of the decision to start taxing incomes earned off-reserve and said they represent a threat to treaty-rights.

"Here again Canada is unilaterally interpreting the treaties," said Regena Crowchild, president of the Indian Association of Alberta. "They go ahead and make all these laws without consulting."

Ernie Cameron, a vice-president with Federation of Saskatchewan Indian Nations, said chiefs in his province will be meeting to develop an action plan for all tax issues.

"We are not going to sit back and let the federal government dictate to us," he said.

Meanwhile, Assembly of First Nations chief Ovide Mercredi said he will "vigorously oppose" the end of tax exemptions. He criticized the department for taking an "adversarial approach" to dealing with First Nations people.

Tunnicliffe said it is possible to have Revenue Canada's decision overturned in the courts. So far only lower courts have applied the Williams unemployment case to income tax cases. Higher courts could decide the decision does not apply to income taxes if the cases are challenged, he said.