The Supreme Court of Canada has ruled that first nations are exempt from taxes on revenues earned on investments made outside native reserves.
The landmark decision overturned lower-court rulings claiming that the estate of the late Rolland Bastien, a Huron-Wendat aboriginal, was required to pay taxes on all revenues generated from term deposits at an on-reserve financial institution.
The Supreme Court judges concluded that Mr. Bastien made term deposits at the Caisse populaire Desjardins located on the reserve and had no control over where his savings would be invested.
"Mr. Bastien made a simple loan to the on-reserve Caisse. The Caisse's income-producing actions and contracts after Mr. Bastien invested in term deposits cannot be deemed his own and do not diminish the many and clear connections between his interest income and the reserve. Consequently, the potentially relevant factor of the location of the issuer's income-generating activities is of no importance in this case," the Supreme Court judges concluded on Friday in a majority ruling.
Mr. Bastien, who died in 2003, operated a moccasin manufacturing business on the Huron-Wendat reserve near Quebec City, where he lived his entire life. He sold the business to his children in 1997. The profits from the sale were invested in term deposits at the on-reserve Caisse populaire Desjardins.
Revenues generated from the deposits were deemed to be taxable income by the Tax Court of Canada in 2007, because in its interpretation of the Indian Act the revenues were obtained from investments outside the reservation. The ruling was upheld in 2009 by the Federal Court of Appeal. The lower courts ruled that in order to be exempt from taxation, the revenues had to be closely connected to the reserve.
But the Supreme Court noted that the "market is not limited to a reserve, a province or even a country," and should not be the determining factor in deciding whether the income from the term deposits should be considered taxable income.
The chief of the Huron-Wendat nation, Konrad Sioui, called the ruling a "historic victory," saying it was perhaps the most important legal ruling ever involving the treatment of native taxation rights.
"It is probably the most important decision involving native fiscal rights in Canada over the last 150 years, since the adoption of the Indian Act," Mr. Sioui said Friday, calling it a big wing for all first nations in Canada.
Mr. Sioui said that by recognizing the right of all first nations to be exempt from paying taxes on revenues generated from investments made outside reserves, the Supreme Court has given native communities an important tool in pursuing their economic development.
"It recognizes that in the current context of economic development, we need to be self-sufficient if we want to build an economy, become autonomous and achieve self-determination. So as long as the Indian Act exists, as long as we live on Indian reserves, the principles recognizing (tax) exemptions must remain intact," Mr. Sioui said.