Date: 20031118
Docket: T-222-97
Citation: 2003 FC 1361
BETWEEN:
RACHEL SHILLING
Plaintiff
- and -
HER MAJESTY THE QUEEN
AS REPRESENTED BY
THE MINISTER OF NATIONAL REVENUE
Defendant
Introduction
[1] This is a motion by the Defendant for summary judgment dismissing the Plaintiff's action (the "Action") on the basis that, following the determination of a question of law, pursuant to Rule 220 of the Federal Court Rules, 1998 ("Rule 220"), there is no genuine issue left for trial.
Background
[2] In June 1994, Revenue Canada (now the Canada Customs and Revenue Agency ("CCRA")) published a document entitled "Indian Act Exemption for Employment Income: Guidelines" (the "Guidelines").
[3] The Guidelines were to become effective for the 1995 tax year and were prepared in response to the Supreme Court of Canada's decision in Williams v. The Queen, [1992] 1 S.C.R. 877 ("Williams").
[4] On December 15, 1994, in reaction to the Guidelines, a number of aboriginal people occupied the fifth floor of CCRA's Toronto Tax Services Office. The "sit in" ended with a settlement on January 13, 1995. In the settlement, the parties agreed that a number of "test cases" would be brought to the Court. This Action is one such case.
[5] This Action has had a convoluted procedural history but I will focus only on the events which led to the determination of a question of law pursuant to Rule 220.
[6] This Action began with a Statement of Claim dated February 7, 1997. It sought relief with respect to the following two issues:
(i) whether, considering section 87 of the Indian Act, R.S.C. 1985, c. I-5 (the "Act"), the Plaintiff was required to pay tax on her employment income earned in Toronto;
(ii) whether the Guidelines offend the Canadian Charter of Rights and Freedom (the "Charter").
[7] The Prayer for relief at the conclusion of the Statement of Claim in this Action is attached as Schedule I to these reasons.
[8] By notice of motion returnable on May 7, 1998, the Plaintiff set out the questions she wanted the Court to decide pursuant to Rule 220(1). They are found on Schedule II to these reasons. At that time, the Plaintiff's written representations stated that the questions would, in all likelihood, eliminate the need for a trial if the Plaintiff were successful and it would shorten the trial if the Plaintiff did not succeed.
[9] In its Memorandum of Fact and Law dated May 6, 1998, the Crown opposed the motion on the basis that, although the fifth draft of a Statement of Agreed Facts was part of the Plaintiff's motion materials, the facts were still in dispute. The Crown also opposed the motion because, in its view, the answers to the questions set out in Schedule II hereto would not be conclusive of the matter in dispute which was described as being "... whether the plaintiff's employment income is the personal property of an Indian situated on a reserve within the meaning of section 87 of the Indian Act."
[10] Associate Senior Prothonotary Giles dismissed the Plaintiff's motion on May 26, 1998, because there was no agreement on the material facts. However, the dismissal was without prejudice to a further motion if agreement could be reached.
[11] Thereafter, the parties continued to work on the Statement of Agreed Facts and, on July 27, 1998, the Plaintiff's counsel made the following statement on page 2 of her letter to counsel at the Department of Justice:
As you know, from the beginning of this matter, my client's position has been that the Guidelines do not set out the correct connecting factors concerning residency. That is the main issue to be tried, as well as the related residency issue raised by Foster (i.e. whether the purpose of the employment must be for the benefit of natives living on reserve). In order to get these major questions to be determined without further delay - and given the difficulty we have experienced in reaching agreement with the Crown - my client is prepared to drop the Charter issue from the pleadings in Shilling and from the proposed questions of law.
[My emphasis]
[12] Further to this letter, the Plaintiff's counsel acknowledged in submissions before me that the Charter issue was no longer in dispute in this Action.
[13] On October 23, 1998, the Statement of Agreed Facts was finalized (the "Agreed Facts") and the Plaintiff again moved to have questions of law determined pursuant to Rule 220. The proposed questions are attached hereto as Schedule III. Questions 1 and 2 on Schedule III were the same as those found in Schedule II hereto, but question 3, dealing with the Charter, was deleted.
[14] This motion was heard by Madam Justice Reed and, again, the Plaintiff's written representations dated October 29, 1998, said on page 7 that a trial would likely be unnecessary if the Plaintiff succeeded and would be shortened even if the Plaintiff did not succeed.
[15] However, the Crown's Memorandum of Fact and Law dated November 20, 1998, showed Justice Reed that the Crown remained concerned that the questions on Schedule III would not be conclusive of the fundamental matter in dispute (i.e. whether the Plaintiff's income was taxable) and would only delay the case which was ready for trial.
[16] When she heard the Plaintiff's motion on November 23, 1998, Justice Reed did not accept the Plaintiff's proposed Questions of Law. Instead, she stated the following question for determination under Rule 220:
Is Rachel Shilling entitled by operation of section 87 of the Indian Act to exemption from income tax with respect to the salary paid to her by Native Leasing Services for the years 1993-1996 in the circumstances described in the Statement of Agreed Facts (Schedule B to the within motion and pages 8 - 22 of the Plaintiff's Motion Record)?
(Note: the question contains a typo - the years in question were 1995 and 1996 not 1993 to 1996. This error was corrected in later proceedings.)
[17] It is clear to me that Her Ladyship decided that, if a question of law was to be stated for determination in circumstances in which the case was ready for trial, the question should be dispositive.
[18] In due course, the motion under Rule 220 to answer the question posed by Justice Reed came before Madam Justice Sharlow when she was a judge of the Trial Division. She applied the connecting factors analysis described by the Supreme Court of Canada in Williams and, in a decision dated June 9, 1999, concluded that the location of the Plaintiff's employer on the Six Nations Reserve was a crucial factor linking the Plaintiff's employment income to the reserve and that the Plaintiff did not owe income tax because the Plaintiff's employer's office on the reserve benefited the reserve.
[19] However, on June 4, 2001, the Federal Court of Appeal reversed Justice Sharlow and denied the Plaintiff the benefit of section 87 of the Act. The Court concluded that the Agreed Facts did not demonstrate that the Plaintiff's off-reserve employment in Toronto by an employer with an office located on the Six Nations Reserve benefited the Reserve to a degree that would connect her employment income to a reserve.
[20] The Court of Appeal concluded its decision with these words:
Accordingly, we would allow the appeal and set aside the order of the Trial Judge with costs. The question of law stated for determination is answered as follows:
Rachel Shilling is not entitled by operation of section 87 of the Indian Act to exemption from income tax with respect to the salary paid to her by Native Leasing Services for the years 1995-1996 in the circumstances described in the Agreed Statement of Facts.
[21] Following this decision, the Plaintiff's application for leave to appeal to the Supreme Court of Canada was denied on March 14, 2002.
[22] Against this background, the question on this motion is whether there is a genuine issue left for trial in this action. I have concluded that the answer is "no" for the following reasons:
1. Pursuant to Rule 220(3), there has been a final determination that the Plaintiff owes income tax for 1995 and 1996;
2. It is conceded by Plaintiff's counsel that there are no outstanding Charter issues;
3. The Guidelines do not have the force of law and are not justiciable according to a decision of Reed J. dated December 11, 1998, Obonsawin (c.o.b. Native Leasing Services) v. Canada (Minister of National Revenue - M.N.R.), [1998] F.C.J. No. 1819.
[23] Counsel for the parties clearly recognized that the Court would be interested in the location of the Plaintiff's employer and counsel for the Plaintiff recognized that the question of benefit to the reserve would be important (see para. 11 supra). The Plaintiff's counsel now says that she was unaware that Sharlow J. would assign significant importance to the benefits to the reserve from the location of the Plaintiff's employer's office on the reserve but this position does not accord with that taken in her letter to Crown counsel of July 27, 1998.
[24] As Sharlow J. noted, the law dealing with the proper application of the tax exemption described in section 87 of the Act has been in flux. For example, in Williams the pre-eminent importance of the location of the employer was replaced by a requirement to weigh all the factors that could be said to connect the employee's income to the reserve. At the same time, it was acknowledged that the most significant factor after the analysis might remain the location of the employer's place of business. Because of Williams, it was foreseeable that mere location would not satisfy the Court and that a benefit to the reserve would have to be demonstrated and the Plaintiff's counsel recognized that fact.
[25] As well, in Canada v. Folster, [1997] 3 F.C. 269 (C.A.), the Court of Appeal affirmed that the location of the employer was a potentially relevant factor linking an Indian's employment income to a reserve.
[26] With these decisions in mind, the approach taken by Justice Sharlow could not be called new or unexpected. She acknowledged that the employer's location was important and drew inferences about how its on-reserve location could benefit the reserve. Unfortunately, the Court of Appeal was not satisfied that the Agreed Facts provided an adequate foundation for her decision.
[27] However, the Federal Court of Appeal decided that tax was payable and, once leave to appeal to the Supreme Court of Canada was denied, income tax became payable in this case and no issues remained outstanding. Accordingly, I have determined that there is no genuine issue for trial and an order will be made granting the Defendant's motion for summary judgment and dismissing the Action.
(Sgd.) "Sandra J. Simpson"
JUDGE
Vancouver, B.C.
November 18, 2003
FEDERAL COURT OF CANADA
Names of Counsel and Solicitors of Record
DOCKET: T-222-97
STYLE OF CAUSE: RACHEL SHILLING v. HER MAJESTY THE QUEEN
DATE OF HEARING: May 28, 2003
PLACE OF HEARING: Toronto, Ontario
REASONS FOR ORDER BY: SIMPSON J.
DATED: November 18, 2003
APPEARANCES BY: Barry Wortzman
Leslie Pinder
For the Plaintiff
John Shipley
For the Defendant
SOLICITORS OF RECORD:
Mandell Pinder
Barristers & Solicitors
500 - 1080 Mainland Street
Vancouver, British Columbia
V6B 2T4
For the Plaintiff
Morris Rosenberg
Deputy Attorney General of Canada
Tax Litigation Section
Department of Justice
222 Queen Street, 12th Floor
Ottawa, Ontario
K1A 0H8
For the Defendant