Natives under the tax axe again

Page 8

OPINION

When the clock strikes midnight on Dec. 31, the vampires at Revenue Canada will make good on their threat to bleed even more taxes from status Indian employees working off reserves.

First announced by the now-dead Tory government at the end of 1992, this newest tax-grab allows only some status Indians working for businesses headquartered on an Indian reserve to remain exempt from income tax on earnings for work done on-reserve, despite the fact that Section 87 of the Indian Act is intended to allow status Indians and band businesses to operate tax free.

The move originated as a response from Ottawa to the Supreme Court's 1992 ruling in Williams vs. Canada that unemployment insurance earnings are taxable for status Indians if the insurable earnings were the result of work done off-reserve. Ruling that tax exemptions acceptable under Section 87 should be based on "sufficient connecting factors" linking the income source to a reserve, the court left the door to further litigation wide open by failing to specify what determining factors should be used in future cases.

Some tax lawyers and Aboriginal leaders interpreted the court's ruling to mean that some status Indians who had been forced to pay income tax prior to the Williams case might be found exempt if they showed a sufficient connection between their income source and reservation.

Closing doors

Seeing this coming, Revenue Canada quickly closed the door by announcing last year that it would not consider refunds on taxes paid prior to 1985, saving Ottawa from re-paying many who had been unfairly taxed on reserve-based income. At the same time, it introduced its now-infamous Williams Interpretation Bulletin (I-61) which set out arbitrary definitions of the "sufficient connecting factors" that were left vague in the Williams decision.

Prior to this decision, income tax for status Indians was determined on the basis of a framework arising form the Supreme Court's 1983 Nowegijick decision which said that all status Indians working for on-reserve employers were tax-exempt. In the ensuring decade after Nowegijick, many Aboriginal businesses and organizations moved on to reserves, increasing local employment and keeping tax money in the communities.

Location key

Williams allowed Revenue Canada to skulk around this obstacle by twisting the intent of the ruling, arbitrarily interpreting the "principle factor connecting income to a reserve" as being "where the duties were carried out." It then issued a remission order giving status Indian working off-reserve a temporary exemption from the Income Tax Act during a transition period that was to have ended Dec. 31, 1993. After that time, only those who met the government's arbitrary interpretation of "sufficient connecting factors" would be allowed to continue enjoying the exemption.

This move led a great many Aboriginal people to begin planning legal challenges to Ottawa's claw-back of what is commonly seen as an Aboriginal right. Most First Nations in Canada agreed long ago to trade huge tracts of lands and resources for Aboriginal rights including tax immunity "as along as the sun shines and the rivers flow."

The outcry was picked up by the Liberals who, as official opposition, wanted to score whatever hits they could on the beleaguered Tories. In a letter dated June 30, 1993, for instance, Jean Chretien said that Revenue Canada's changes were "based on a seriously flawed understanding of the Supreme Court's ruling in the Williams Case "because" in the Williams case, the Supreme Court was rendering a decision on the issue of the tax status of unemployment benefits - and in doing so cautioned against the very interpretation offered by Revenue Canada."

Calling the Tories move "unilateral and "irresponsible," Chretien went on to complain about the changes being made "without the prior consultation of Aboriginal peoples and their representative organization" and offered assurances that "a Liberal governmen would act in a far different manner."

In a promise which has not been kept in many areas including income tax changes, he added: "We consider the relationship between the federal government and the Aboriginal peoples as a co-operative and participatory process towards the resolution of long-standing problems."

Liberals flip-flop

As seen so many times before, after coming to office the Liberals flip-flopped on their promises. Glossing over their verbal and written agreements to end Aboriginal taxation, the new government announced that it would simply "extend" the transition period for one year to midnight Dec. 31, 1994. Accompanying that announcement was

a new Revenue Canada brochure titled Indian act Exemption for Employment Income: Detailed Guidelines, which simply re-packaged RevCan's earlier position that the taxation of status Indians will be determined by a complicated matrix of factors like where the employee lives, where the work is done and where the employer is based.

Under the guidelines, fully safe are only those status Indian individuals living on-reserve, performing all of their employment duties on-reserve for a reserve-based company or band council. If at least half of the work is done on-reserve and they either live on-reserve of their employer's operations are on-reserve, the employee might be exempt from taxes. Likewise, the employee might also be exempt if all or some of the work is done off-reserve but she or he lives on-reserve and the employer's operations are based there.

In a move which some complained smelled of corruption, employees of tribal councils and regional, provincial or national status Indian organizations like the Assembly of First Nations were made exempt from income taxes, even when the organizations are located off-reserve (apparently because these groups are working on a non-commercial basis for Native people living on First Nations). The same exemption was applied to Native organizations dedicated to the social, cutural, educational or economic development of First Nations.

Exemption confusing

However, it remains unclear exactly who this latter exemption will apply to, since the government has already said that it will not extend it to Friendship centres or Aboriginal employment agencies because such organizations are said to be mainly focused on off-reserve Aboriginal people. Likewise, groups that operate off-reserve to serve the needs of reserve clients fall into yet another hazy area and it is likely that individual employee's income tax will be prorated according to a complex formula based on the portion of their work done for on and off-reserve clients.

The bottom line of all this convolution and red tape for Native people is renewed splintering and division as they fight for tax immunity. Each individual with a tax grievance will be forced to take on the Revenue Canada bureaucracy, which holds the final decision in any such dispute. Beyond that, the only official avenue of redress is a long, arduous and extremely expensive foray before the very courts that created this whole mess by providing vague words in the Williams decision. Once again, official federal policy appears to be designed to leave the First Peoples divided, spinning in legalistic and bureaucratic circles just to retain what was promised to them long ago.

Who gains?

Is all this really necessary? Is our federal government really so hard up for money that it must squeeze even more money from the poorest of the poor?

One thing that is sure is that the average Canadian taxpayer is unlikely to offer much support for Native people in this struggle and not only because of decades of misinformation from the media and politicians about Aboriginal people living high off the hog at "our" expense. Joe and Jane taxpayer are also well aware that their share of taxes have continued to increase with every federal budget over the last few decades. Individual income taxes have increased as a percentage of the overll federal tax revenue from 31 per cent of total revenues in 1961 to 50 per cent in 1992. And thanks to the Tories and now the Liberals, the regressive Goods and Services Tax is here to stay, hitting everyone equally hard on virtually every purchase, no matter their income (aside from a few meagre refunds.)

We are now paying more, but where is all the money going? If we are to believe the media, most of it is servicing an enormous debt created by decades of government mismanagement. While that appears for the most part to be true, the present media-induced climate of debt-hysteria has served to disguise the truth that while individual incomes taxes accounted for an additional 18 per cent of federal revenues between 1961 and 1992, the percentage of taxes paid by corporations dropped from 21 per cent at the beginning of that period to an estimate 6.3 per cent of federal revenues this fiscal year.

Corporations evade taxes - legally

It is in these corporate handouts that the real story lies. Consider the particulars: during the 1992 fiscal year, Statistics Canada figures show that 63,000 companies with combined profits of $14 billion failed to pay a single penny in income taxes because of perfectly legal deductions, reductions, incentives and credits. Liberal Finance Minister Paul Martin also noted last December that tax reductions in the manufacturing and processing sector cost the Treasury $315 million in 1990 and gifts to the Crown added

up to an additional $26 million that same year. Refundable capital gains for investment corporations cost Canada an additional $81 million, exploration write-offs $156 million and business meals, entertainment and other perks an additional $357 million.

And in 1992, the Auditor General's report warned that tax breaks for foreign affiliates cost Canada hundreds of millions each year, with little or no tangible benefits for Canadians.

Not only these corporations but also their owners and the country's elite continue to receive