Employment Income Not Substantively Connected To A Reserve Is Taxable

In Baldwin et al v the Queen, 2014 TCC 284, the Tax Court of Canada had an opportunity to consider section 87 of the Indian Act and when employment income is "situated on a reserve" for tax purposes.

Facts

Each of the five Appellants was employed by Native Leasing Services (NLS). NLS is owned and operated by a status Indian who resides on a reserve. NLS provides employment placement services to not-for-profit Aboriginal organizations, and offers support services, including payroll services, human resource support, employee leasing/outsourcing, bookkeeping and staffing. Only NLS' administrative staff provided services on the reserve. None of the Appellants worked on a reserve, and only one of them had a residence on a reserve, which she lived in on weekends. Each provided services to various Aboriginal organizations through NLS in various cities in Ontario and Quebec.

Decision

The Court rejected an approach to s. 87 of the Indian Act that focused on the situs of the employment income, finding that this test had been overturned by the Supreme Court of Canada in Williams v Canada, [1992] 1 SCR 877, and confirmed in Bastien Estate v Canada, 2011 SCC 38. Both of those decisions establish that the "connecting factors test" now applies to determine the location of intangible personal property under s. 87.

The "connecting factors test" has two steps: 1) identify potentially relevant factors tending to connect the property to a location, and 2) determine the weight that should be given to the factors in light of three considerations: the purpose of the exemption from taxation, the type of property and the nature of the taxation of that property.

In this case, the Court examined the following factors: the location of the employer, the location where the Appellants were paid, the Appellants' residence, and the location, nature of the services performed and the special circumstances in...