Tax Court of Canada Rules on Location of Business Income for the Purpose of Tax Exemption Under the Indian Act

July 16, 2012 | Sarah D. Hansen, Kelsey Sherriff

On July 10, 2012, the Tax Court of Canada released its judgment in Dickie v. The Queen, 2012 TCC 242, wherein Miller Thomson, and co-counsel Robert Janes of JFK Law Corporation, were successful on an appeal of a reassessment made under the Income Tax Act, and the reassessment was vacated.

The Appellant is a status Indian operating a sole proprietorship on the Fort Nelson Indian Reserve, which carried on the business of clearing and slashing timber and brush for oil and gas companies based off reserve. While almost all of the slashing work performed by the business was performed off-reserve, the administrative centre for the business was the Appellant’s home address on the Reserve. The Appellant’s property contained the office of the business as well as a shop building where the equipment was maintained and stored. The Appellant recruited workers from that office; conducted orientation and safety meetings for project work crews there; negotiated contracts there or received requests to tender for work there; completed tender packages and bids there; received payments there; paid bills there; and conducted various other administrative duties there. The Court characterized the business as a “nomadic business”; where it is expected to provide its services to different sites outside its offices or headquarters on a project–by-project basis, without having any physical or permanent type base at any of those sites, but with the administrative employees of the business located almost exclusively on the Reserve.

The Court held that a proper analysis of the location of business income requires a consideration of all the components of the business, including both the physical activities and the business activities. Applying the “Connecting Factors Test” enunciated by the Supreme Court of Canada in Williams v. Canada, [1992] 1 S.C.R. 877; and recently confirmed in Bastien Estate v. Canada, 2011 SCC 38; and Dubé v. Canada, 2011 SCC 39, the Court found that there was a sufficient connection between the Appellant’s business income and the Reserve such that it was personal property situated on a reserve within the meaning of section 87(1)(b) of the Indian Act and was therefore exempt from taxation under section 81(1)(a) of the Income Tax Act.

The Court found that the business performed its contractual obligations from a labour perspective off Reserve because that is where the work was; and the Court noted that this is the case for both Indian and non-Indian owned businesses competing for this type of work and accordingly by its very nature, the location of these activities was not by itself determinative of the location of the business income. Furthermore, the Court noted that, despite the fact that the customers were all located off the Reserve, the parties corresponded mainly by electronic means and the Court held that in the modern world, where parties conduct their transactions in the electronic world, such factors are of little assistance in aiding the Court to determine the location on the business income.

Instead, the Court found that on the facts of the case, there was strong evidence that the managerial activities of the business were much more than merely incidental to the business. When the nature of the business is performing contracts obtained on a competitive bid process, the Court acknowledged that a great deal of effort is expended in bringing in the work through this process and most, if not all of those efforts by the Appellant, occurred on the Reserve. This was in addition to the other administrative duties and the management of the workforce, which took place on reserve. The Court held that the management component of the business was highly indicative of setting the location of the business activities on reserve.

With regards to the Crown’s arguments that the Appellant was operating his business in the “commercial mainstream” and that the business was not integral to the life on reserve, the Court held that the approach to section 87(1)(b) of the Indian Act cannot be to make consideration of the commercial mainstream itself the determinative test as such an approach would in fact result in the substituting itself for the issue that must be determined, which is the location of the property. Furthermore, the Court went on to consider that the treatment of the commercial mainstream as a factor has involved, as a corollary, a consideration of whether the activity is “Indian enough”. The Court held that such a categorization is inappropriate; aboriginal persons are not limited to activities that are considered to be traditionally Indian. Instead, the Court held that the term “commercial mainstream” is now a misnomer and that instead, competition with non-aboriginal persons is the more accurate category that would describe the real reason for the existence of this factor. The Court then went on to conclude that regardless of whether an aboriginal person competes with non-aboriginals or not, the question of competition per se, or the “commercial mainstream” is irrelevant.

Finally the Court emphasized that just because a finding that a property is situated on a reserve may lead to a competitive advantage given to an Indian over a non-Indian, does not give reason to negate the finding that it is situated on a reserve.

This decision could have positive implications for other large Indian run businesses of a nomadic nature whose business centre and bidding activities take place on a reserve. In addition, the Court’s discussion went further than recent Supreme Court of Canada jurisprudence in considering the relevance of the “commercial mainstream” and therefore, it may become the leading case for assessing the location of business income.

For further information or assistance please contact counsel for the Appellant, Reynold Dickie:

Sarah Hansen at 604.643.1273,

Kelsey Thompson at 604.643.1259,


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