OTTAWA -- Interest earned by natives from accounts held on reserves is tax-free, the Supreme Court of Canada ruled Friday.
The court overturned a pair of rulings from the Tax Court of Canada and the Federal Court of Appeal, which held that such earnings were taxable.
The rulings "make it clearer that the Indian Act isn't trying to stick Indians in the 1800s" and will allow for modern economic activity, said Victoria-based lawyer Robert Janes.
"It's a significant message from the Supreme Court of Canada."
Both cases dealt with interest income from deposits in caisses populaires, or credit unions, but would presumably apply to deposits with any financial institution on a reserve.
The lower courts ruled that since the institutions earned their money in the general economy, the interest is taxable.
The high court said that is irrelevant and what counts is that the money was native property on a reserve, which is tax-exempt under the Indian Act.
The lower courts "reasoned that the caisse populaire generated its revenues in the 'economic mainstream,' not on the reserve, and therefore that the interest it paid... was not situated on the reserve," Justice Thomas Cromwell wrote in the main case.
"In my respectful view, the interest income paid... was situated on a reserve and was therefore exempt from taxation."
He said the question of how the credit union earned money doesn't apply, because the deposit was essentially a loan to the institution by the customer and what was done with the money didn't matter.
The court ruled 7-0 in the first case, which involved the estate of a Quebec man named Rolland Bastien. That decision set out the general rules.
The second case, which involved deposits held by Alexandre Dubé in a credit union on a reserve different from his own, was a 5-2 split decision.
The dissenting judges said the facts in the Dubé case didn't have as many concrete connections to the reserve and wouldn't qualify. Dubé lived off-reserve part-time and ran an off-reserve business.
Writing for the majority, though, Cromwell said the same principles apply.
"Applying the analysis set out in Bastien, my respectful view is that the Tax Court and the Federal Court of Appeal erred in both the approach they took and in the result they reached in this case."
While the rulings apply to bank accounts, they send a signal that the government won't move to tax modern economic activity on reserves, said Janes.
For years, there has been a back-and-forth fight about whether economic activities on reserve are "Indian enough" to qualify for the Indian Act tax exemption, Janes said.
"That's made it hard for aboriginal people who have been trying to invest or develop capital."
Now, it's clear that banking activity and other on-reserve investment won't be penalized through taxation, he added.
"I think it will create another incentive for investment on reserve, and to develop on-reserve properties."
The Assembly of First Nations' national chief hailed the ruling as a victory -- and called on the Canada Revenue Agency to end its efforts to erode aboriginal rights.
"After relentless efforts over many years by the Canada Revenue Agency to erode the First Nations tax exemption, the Supreme Court has upheld the exemption and affirmed its ongoing relevance," Shawn Atleo said in a statement.
"The onus is now on the Canada Revenue Agency to work with First Nations to change its approach and policies."
-- The Canadian Press