Williams v. Canada [1992] 1 S.C.R. 877

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Glenn Williams                                                      Appellant


Her Majesty The Queen                                                                   Respondent

Indexed as:  Williams v. Canada

File No.:  22116.

1991:  October 10; 1992:  April 16.

Present:  La Forest, L’Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin and Stevenson JJ.

on appeal from the federal court of appeal

                   Income tax ‑‑ Exemptions ‑‑ Regular and enhanced unemployment insurance benefits received by Indian residing on reserve ‑‑ Indian qualifying for benefits for work done on reserve ‑‑ Test for situs of unemployment insurance benefits ‑‑ Whether benefits exempt from tax under Indian Act ‑‑ Indian Act, R.S.C. 1970, c. I‑6, s. 87 ‑‑ Income Tax Act, S.C. 1970‑71‑72, c. 63, s. 56(1)(a)(iv).

                   Indians ‑‑ Taxation ‑‑ Exemptions ‑‑ Regular and enhanced unemployment insurance benefits received by Indian residing on reserve ‑‑ Indian qualifying for benefits for work done on reserve ‑‑ Test for situs of unemployment insurance benefits ‑‑ Whether benefits exempt from tax under Indian Act ‑‑ Indian Act, R.S.C. 1970, c. I‑6, s. 87 ‑‑ Income Tax Act, S.C. 1970‑71‑72, c. 63, s. 56(1)(a)(iv).

                   The appellant, a member of an Indian Band, received regular unemployment insurance benefits in 1984 for which he qualified because of his former employment with a logging company, and his employment by the Band in a “NEED” project.  In both cases, the work was performed on the reserve, the employer was located on the reserve, and the appellant was paid on the reserve.  In addition to regular benefits, the appellant also received “enhanced” unemployment insurance benefits paid in respect of a job creation project administered on the reserve by the Band, pursuant to a written agreement between the Band and the Canada Employment and Immigration Commission.  The regular and enhanced benefits were paid by the Commission’s regional computer centre in Vancouver.

                   The appellant received a notice of assessment by the Minister of National Revenue which included in his income for 1984 the regular and enhanced unemployment insurance benefits.  The appellant contested the assessment but his objection was overruled by the Minister.  The appellant then appealed to the Federal Court, Trial Division which concluded that, under the Indian Act , both the regular and enhanced  unemployment insurance benefits were exempt from taxation.  The Federal Court of Appeal set aside the judgment holding that only the enhanced portion of those benefits was exempt.  The issue in this case is the situs of unemployment insurance benefits received by an Indian for the purpose of the exemption from taxation provided by s. 87  of the Indian Act .

                   Held:  The appeal should be allowed and the cross‑appeal should be dismissed.

                   The situs of the receipt of unemployment insurance benefits cannot be determined in the same way the conflict of laws determines the situs of a debt.  To simply adopt general conflicts of law principles and to apply the “residence of the debtor” test in the present context would be entirely out of keeping with the scheme and purposes of the Indian Act  and Income Tax Act.  While the residence of the debtor may remain an important factor, or even the exclusive one, this conclusion cannot be directly drawn from an analysis of how the conflict of laws deals with such an issue.

                   The proper approach to determining the situs of intangible personal property is for a court to evaluate the various connecting factors which tie the property to one location or another.  In the context of the exemption from taxation in the Indian Act , the connecting factors which are potentially relevant should be weighed in light of three important considerations:  the purpose of the exemption; the type of property in question; and the incidence of taxation upon that property.  Given the purpose of the exemption, the ultimate question is to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian qua Indian to personal property on the reserve.

                   The location of the employment which gave rise to the qualification for the unemployment insurance benefits is a particularly relevant factor in identifying the situs of the benefits.  The connection between the previous employment and the benefits is a strong one.  The benefits are based on premiums arising out of previous employment, not general tax revenue, and the duration and extent of the benefits are tied to the terms of employment during a specified period.  The manner in which unemployment insurance benefits are treated for the purposes of taxation further strengthens this connection, as there is a symmetry of treatment in the taxation of premiums and benefits, since premiums are tax‑deductible and benefits are taxed.  For an Indian whose qualifying employment income was on the reserve, however, the symmetry in the tax implications of premiums and benefits breaks down.  The original employment income was tax‑exempt and the taxation paid on the subsequent benefits does more than merely offset the tax saved by virtue of the premiums.  It is an erosion of the entitlements created by the Indian’s employment on the reserve.

                   In this case, since the location of the qualifying employment was on the reserve, the benefits received by the appellant were also located on the reserve.  This conclusion also applies to the enhanced benefits.  The appellant only qualified for participation in the job‑creation program because he had been receiving regular unemployment insurance benefits, that is, because of his prior employment that had ceased.  It follows that both the regular and enhanced benefits were exempt from taxation pursuant to s. 87  of the Indian Act .

                   The question of the relevance of the residence of the recipient of the benefits at the time of receipt does not arise in this case since it was also on the reserve.  The residence of the debtor and the place where the benefits are paid are connecting factors of limited weight in the context of unemployment insurance benefits.

Cases Cited

                   Referred to:  Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85; Nowegijick v. The Queen, [1983] 1 S.C.R. 29; The Queen v. National Indian Brotherhood, [1979] 1 F.C. 103; New York Life Insurance Co. v. Public Trustee, [1924] 2 Ch. 101; Tétreault‑Gadoury v. Canada (Employment and Immigration Commission), [1991] 2 S.C.R. 22; YMHA Jewish Community Centre of Winnipeg Inc. v. Brown, [1989] 1 S.C.R. 1532.

Statutes and Regulations Cited

Employment and Immigration Department and Commission Act, S.C. 1976‑77, c. 54, s. 11.

Income Tax Act, S.C. 1970‑71‑72, c. 63, s. 56(1)(a)(iv) [am. 1980‑81‑82‑83, c. 140, s. 26].

Indian Act, R.S.C. 1970, c. I‑6, ss. 87  [am. 1980‑81‑82‑83, c. 47, s. 25], 89, 90.

Unemployment Insurance Act, 1971, S.C. 1970‑71‑72, c. 48, s. 38(3) [ad. 1976‑77, c. 54, s. 41].

Authors Cited

Castel, J.‑G. Canadian Conflict of Laws, 2nd ed. Toronto:  Butterworths, 1986.

Cheshire, G. C. and P. M. North. Private International Law, 11th ed. By P. M. North and J. J. Fawcett. London:  Butterworths, 1987.

Dicey, A. V. and J. H. C. Morris.  The Conflict of Laws, vol. 2, 11th ed. By Lawrence Collins and Others. London:  Stevens & Sons, 1987.

                   APPEAL and CROSS‑APPEAL from a judgment of the Federal Court of Appeal, [1990] 3 F.C. 169, 72 D.L.R. (4th) 336, 109 N.R. 223, 32 C.C.E.L. 1, 90 D.T.C. 6399, [1990] 2 C.T.C. 124, [1991] 2 C.N.L.R. 172, setting aside a judgment of the Trial Division, [1989] 2 F.C. 318, 24 F.T.R. 169, 24 C.C.E.L. 119, 89 D.T.C. 5032, [1989] 1 C.T.C. 117, [1989] 1 C.N.L.R. 184.  Appeal allowed and cross‑appeal dismissed.


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