Tax exemptions for indigenous people who live on First Nations reserves are unfair and serve no justifiable purpose, according to a new report that calls for scrapping the exemptions.
“Its main outcome has been to generate resentment by the other 39 million Canadians who are required to pay taxes on income and sales.”
Mr. Flanagan, a professor emeritus of political science at the
University of Calgary, says the tax exemption has long been controversial.
“In 50 years of speaking to Canadian audiences about Indigenous issues, I have found that the question of taxation generates more emotion than any other topic because it directly raises issues of fairness that are central to democratic politics,” he writes in the report.
“It is contrary to the general ethos of democratic societies, which assumes that the state should treat all citizens equally and that all citizens should pay their fair share to support the state.”
Indigenous people living on “Indian lands” were first formally exempted from taxation in 1850, in a provision contained in a
law passed that year in Upper Canada (renamed Ontario after Confederation in 1867). The
Indian Act of 1876 carried forward the exemption, stipulating that those defined as “Indian” or “non-treaty Indian” in the act aren’t subject to taxation for any real or personal property they own on reserve. It added that lands held in trust for Indians are also not taxable.
Then a 1983 Supreme Court of Canada decision expanded on the concept of personal property for the purposes of the
Indian Act, determining that income was included in that concept. Examples would be employment earnings made on reserve and taxes on sales made on reserve, such as GST and HST. “Treaties and statutes relating to Indians should be liberally construed and doubtful expressions resolved in favour of the Indians,” the 1983 unanimous
Nowegijick decision said.
Mr. Flanagan says he finds this conclusion dubious, as those changes didn’t come from elected lawmakers but rather from court and administrative decisions.
“If it [Parliament[ wanted to exempt Indians from paying income tax, it could easily have amended the wording of the Indian Act to make that clear,” he writes. “Several generations of politicians apparently had no desire to absolve Indians from paying income tax in the same way as other Canadians do.”
A case launched in 1992, Benoit v. Canada, sought to extend the tax exemption to all Treaty 8 “Indians” regardless of where they live and work, whether on or off reserve. In 1992, Gordon Benoit, a member of a Treaty 8 First Nation in northern Alberta, argued that the 1899
Treaty 8 commissioners’ report of what was said during the treaty negotiations, supported by oral tradition, guaranteed exemption from taxation off reserve.
According to the report, “Many [indigenous people] were impressed with the notion that the treaty would lead to taxation,” and “We [the commissioners] assured them that the treaty would not lead to any forced interference with their mode of life, that it did not open the way to the imposition of any tax.”
In the Federal Court’s 2002 decision, Mr. Benoit won the case, but the Federal Court of Appeal reversed that decision in 2003. The appeal court found that the earlier decision had given too much weight to oral tradition that contradicted written sources, stating, “there is insufficient evidence to support the view that the Aboriginal signatories understood that they would be exempted from taxation at any time and for any reason.”
‘Controversial Changes’
Specifically, the tax exemptions don’t apply to all indigenous people in Canada, but only to “Registered Indians” on reserve.
Registered Indians, also known as Status Indians, are defined as those First Nation individuals registered with the federal government as “Indians” according to terms defined in the
Indian ActStatistics Canada data shows that Registered Indians numbered 1,040,319 at the end of 2021, of whom 493,299 lived on reserve. Under
section 87 of the Indian Act, which covers property exempted from taxation, residents can buy tax-free products on the reserve, such as cigarettes and gasoline. Moreover,
employment income they earn is exempt from income tax only if it meets Canada Revenue Agency rules as being situated on a reserve.
A 2017
paper co-published by the Atlantic Institute for Market Studies and the Frontier Centre for Public Policy estimated that more than $1.27 billion in taxes was exempted on sales and personal income made on reserve in 2014–15.
Mr. Flanagan says Parliament should repeal the tax exemption, “while some of the revenue gained by such taxes could be directed to First Nations to help them develop effective institutions of self-government.”
“Registered Indians on Indian reserves would thus tax themselves, as other Canadians do,” he writes.
Mr. Flanagan proposes that the federal government revise
Section 87 of the Indian Act so that the exemption applies only to land. He also suggests that the government extend federal income tax, as well as sales, excise, and value-added taxes, to all indigenous reserves. However, he says a portion of revenue from such taxes should be returned to the First Nation after it signs a tax administration agreement.
“As these will be major and probably controversial changes, there will need to be a period of adjustment,” he writes. Given that a government could lose power during a transition period and its successors could scrap the changes, he believes “multi-party support” would be “highly desirable.”
Mr. Flanagan told The Epoch Times he doubts any federal government or prime minister would have the political will to spearhead such changes.
“Realistically, I think change is most likely to come about, as it has in the past, through the
First Nations Tax Commission. [Chief commissioner]
Manny Jules and those associated with him are willing to be taxed as long as they get to keep the receipts,” he said.
Mr. Flanagan points out that Conservative Leader
Pierre Poilievre has already endorsed the
First Nations Resource Charge (FNRC). Developed by the First Nations Tax Commission, the
FNRC proposes that First Nations that opt in would collect 50 percent of the federal taxes paid by industrial activities on their land, with industry getting a tax credit in exchange.
“The direct result of the Ottawa-knows-best approach has been poverty, substandard infrastructure and housing, unsafe drinking water and despair,” Mr. Poilievre said during an announcement alongside First Nations leaders in Vancouver on Feb. 8.
“Putting First Nations back in control of their money and letting them bring home the benefits of resource development will get faster buy-in for good projects to go ahead.”
Indigenous Self-Taxation
Federal legislation has slowly inched toward having First Nations tax themselves. The Indian Advancement Act of 1884 authorized the federal cabinet to declare individual bands to be in an advanced state of development and therefore able to exercise powers not mentioned in the Indian Act. One of these powers was taxation of on-reserve property held by band members via two specified forms of property ownership.Changes to the Indian Act in 1951 carried forward this provision, allowing such bands to issue certificates of land possession to band members and collect property tax on those certificates. Revisions in 1988 allowed band councils to collect taxes also on leaseholds held by outside parties on reserve, such as residential and commercial developments and mining and forestry leases.
The First Nations Fiscal Management Act (FMA) of 2005 then gave band councils powers to impose, in addition to property taxes, the “taxation of business activities on reserve lands,” “development cost charges,” and “fees for the provision of services or the use of facilities on reserve lands,” among other charges. As of
February 2022, 130 bands had adopted tax bylaws under the FMA, bringing in $80 million, while another 30 continued to rely on section 83 of the Indian Act to levy property taxes, collecting $24 million.
In the 2020 tax year, 38 First Nations charged an equivalent of the GST on their lands and kept the revenues, while eight others had implemented their own sales taxes and 15 had implemented their own personal income tax. The revenues from these three taxes totalled almost $60 million.
Mr. Flanagan said such revenues have not yet been a “game changer,” especially compared to federal spending on indigenous people, which exceeded
$27 billion in
Budget 2022 and
$29 billion in Budget 2023.
A survey conducted by the University of Saskatchewan in March 2012 found that 75 percent of non-indigenous respondents agreed that “Aboriginal people do not pay enough tax,” with 44 percent expressing strong agreement and 31 percent saying they “somewhat agree.” Among indigenous respondents, 46 percent agreed (24 percent strongly, 22 percent somewhat) and 54 percent disagreed (47 percent strongly, 7 percent somewhat).
