Tax experts disagree on how to deal with looming changes

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Experts on Native taxation can't agree on the impact of a court ruling affecting tax exemption for status Indians.

But speakers at a recent Vancouver conference on the issue all agreed the 1992 Supreme Court of Canada decision referred to as the Williams case won't be the final word on Native taxes.

"The soap opera has to continue," Douglas Sander, a law professor at the University of British Columbia, told the 100 delegates to the two-day conference this month. "Williams isn't the final act; the soprano hasn't sung yet."

The uncertainty over the Williams ruling stems from two different interpretations, one by tax collectors and the other by Aboriginal taxpayers and experts.

Section 87 of the Indian act exempts status Indians who live and work on reserve from paying income tax. And in 1983 in the Nowegijick case, the Supreme Court bolstered that exemption by ruling a status Indian living on reserve but working off reserve didn't have to pay income tax, as long as the employer was based on reserve.

For a decade, Native businesses had structured their tax planning based on that decision.

Then came Williams, a test case intended to decide if unemployment insurance benefits were taxable income. Because the Supreme Court couldn't determine where the payer - the federal government - was based, it concluded other factors connecting the worker to the reserve would have to be used, including where the money was earned, to entitle the worker to tax-free status.

But Revenue Canada interprets this to mean where the money is earned is the most important factor in determining if it's taxable. And it concluded if the money was made off reserve, it must be taxed.

The tax man's view is that Williams overrides Nowegijick. The change was to take effect last Jan. 1 but was moved up to next Jan. 1 to give Natives more time to prepare.

Since the beginning of the year, nothing has changed.

Revenue Canada sticks to its version of Williams. For Natives' part, they cannot agree what the next step should be.

In a panel discussion at the conference, three different experts made three different suggestions.

Barrie Davidson, a Vancouver tax lawyer, called Williams a bad law.

"I don't think there should be any acceptance of the Williams decision," he told delegates.

He said Natives must push another test case to the Supreme Court because the tax department won't back down on its policy guidelines based on its interpretation of Williams.

"The department of Revenue Canada has no intention whatsoever of listening to debate. Its guidelines stand; there's no sense in approaching Revenue Canada."

And he suggested appealing to Jean Chretien, who just before being elected into government called Williams a bad law that needed changing.

"You're wasting your time dealing with anyone short of the prime minister and maybe the minister of revenue," said Davidson. "The First Nations should directly approach the prime minister and ask (the Liberals) to live up to their commitments and to the basis in law."

David Anderson, the Vancouver-based federal revenue minister, had agreed to be keynote speaker at the conference but withdrew a week earlier without explanation, said Blythe Rogers, who handles public relations for the Native Investment and Trade Association, which organized the conference.

Revenue Canada said it doesn't set policy, it just collects taxes, he said.

Anderson could not be reached for comment.

Said Davidson, "We should all get behind a test...another test case has to be pushed to the Supreme Court to decide this case once and for all."

But Jack London, a Winnipeg lawyer and panel member, had a different view.

"First Nations should stay as far away from the courts as they possibly can," he said. "What test cases are likely to wind up doing are setting very difficult precedents that will set back the laws that provided for the liberal interpretations in the past."

He suggested Aboriginals work the Williams decision to thei advantage by adapting their tax planning under the new guidelines, for instance by setting up trusts.

"If you focus on Williams as bad law, you'll miss the good part of Williams," said London. "It opens up a whole new area of tax structuring."

A third panel member, Robin Wortman, the Metis executive director of the Advancement of Native Development Officers in Edmonton, agreed with neither plan.

"What we need is the federal government to vacate the jurisdiction of tax law and hand it over to the governments of First Nations."

"The fundamental issue is that First Nations need jurisdiction because First Nations need unlimited sources of income for economic development and to provide services to the people of their communities," he said.

In response to a delegate from a reserve in Northern B.C., who, as a law student, planned to open an office in Vancouver one day and wondered if he would need to maintain an apartment on his reserve to keep his tax-exempt status, Davidson said, "the answer is yes. If you don't live on the reserve, you're dead."

He added, "Jack's view is to work within Williams' guidelines. But lots of people can't," such as wage workers who wouldn't be able to set themselves up as a corporation on reserve to maintain an exempt status, as a self-employed lawyer could.

And Wortman worried about the effects that would have on reserves, particularly, he said, when huge non-Native businesses always seem to attract the best and brightest Natives as employees.

"If you have to set up an apartment on reserve, what does that leave for the communities? Is that the way we want to see the future?"