Tax at Osgoode Hall Law School

 

1. A distinct “order” of government

The 1996 Royal Commission (Commission) on Aboriginal Peoples[1] gathered information about Aboriginal perspectives on sovereignty, self-determination, and self-government. It also examined the legal and political principles that underlie and inform the emergence of an Aboriginal order of government [author’s emphasis] in Canada.  Emanating from these two information sources, the Commission:

 

1. Described three basic models of Aboriginal governance to demonstrate how the basic visions espoused by Aboriginal people might be put into practice e.g. what Aboriginal self-government might look like, how it might be financed and how it might relate to the other orders of government.
2. Identified concrete steps needed to restructure the relationship between Aboriginal peoples and Canada.
3. Recommended strategies for Aboriginal people to strengthen the governing capacities of their nations and to establish constructive working relationships with other Canadian governments.
4. Identified some fundamental reforms to the structure of Canadian governments that are needed to achieve constructive relationships with Aboriginal people and their nations.[2]

 

From the above, a critical characteristic of First Nation sovereignty is that it is another distinct “order” of government. Does this translate to a constitutional section 91 and 92 division within the Canadian federal system? Or does another “order” take form through federal and/or provincial statutory enactments? My reading is the former. Anything else would reduce First Nation sovereignty to municipal government status and I am not sure that is the “another order” of government the Commission envisioned.

But my interpretation aside, the fact is that several First Nations, e.g. the Nisga’a Peoples[3], have concluded Comprehensive Land Claims Agreements[4] [modern treaties] which were given legal status through an act of parliament and the British Columbia legislature. Effectively, these First Nations are accorded municipal government status.  It is arguable that section 35(1) of the 1982 Constitutional Act affords these Nations an “order” of government like section 91 and 92 but that is another discussion.

 

2. Limited direct taxation powers

I want to focus on the  direct taxation powers, such as the levying of income, sales  and goods and services taxes, that some Nations have adopted, thus removing themselves, fully or partially, from the ambit of the Indian Act  [especially section 87]. I am interested in modern treaty First Nations that accept income and consumption direct taxation as part of their final agreements. For example, as per sections 1 and 2 of Chapter 16[5] of the Nisga’a Final Agreement, although the Nisga’a Nation has acquired direct taxation powers, this power may be superseded by the provincial (B.C.) or federal government. This begs the question – if the Nisga’a is another “order” of government and thus a “sovereign” nation, how is it possible that the taxation powers of the federal and provincial governments trump?  It also raises questions about why a First Nation would want to adopt “colonial legacy” taxation systems when they may have more “appropriate” traditional means of surplus (wealth) creation and sharing (redistribution). If Canada is truly a legally pluralistic society (e.g. Quebec’s civil code, Common Law, and Indigenous Law), then where is the space for the legal systems of indigenous peoples on this matter? Take for example the potlatch and sun dance. These are traditional wealth sharing practices of First Nations in western Canada. Why do these First Nations not return to such practices?

Since the previous questions do not have definitive answers, the bottom line is that the colonial legacy tax system prevails. As such, the vacating of “tax room” for the Nisga’a Nation is very much a discretionary authority that sits with both federal and provincial governments. So, where is the sovereign Nisga’a Nation’s legal jurisdiction that anchors in its inherent right apropos section 35(1) of the 1982 Constitution? This question emanates from sections 3 and 4 of chapter 16[6]. Why even have a chapter 16 in a Comprehensive Land Claim Agreements which clearly requires a tax agreement between a First Nation and the Crown but specifies that the agreement is not part of the “modern treaty”?  If some First Nations are to really be self-determining and self-governing, how can they accept what appears to be a subordinate position in that their legal jurisdiction regarding surplus creation and sharing is based on what the Crown is willing to “vacate”? And these powers must be “harmonized” with Canada’s colonial legacy tax system.

Let us see if there are some answers in Chapter 16. Below are the sections that delineate taxation powers as a delegated, not inherent, right of the Nisga’a Nation:

 

21. On the effective date, the Parties will enter into a Taxation Agreement. The Taxation Agreement does not form part of this Agreement.

 

22. The Taxation Agreement is not intended to be a treaty or land claims agreement, and is not intended to recognize or affirm aboriginal or treaty rights within the meaning of sections 25 and 35 of the Constitution Act, 1982.

 

23. Canada and British Columbia will recommend to Parliament and the Legislature, respectively, that the provisions of the Taxation Agreement be given effect under federal and provincial law.

 

When the above Chapter 16 sections are considered with the Tax Agreement (not a treaty or part of the Nisga’a Final Agreement), it is clear that the Nisga’a Nation, for taxation purposes, is deemed to be a municipality and/or a public body performing a function of government. By the way, although I focus on the Nisga’a Nation, they are not alone – other First Nations have followed a similar legal arrangement. The following sections of the Nisga’a Tax Agreement are informative:

 

5. For purposes of paragraph 149(l)(c) of the Income Tax Act, the Nisga’a Nation and each Nisga’a Village is deemed to be a public body[7] performing a function of government in Canada.

 

6. For purposes of paragraphs 149(1)(d) to 149(1)(d.6) and subsections 149(1.1) to 149(1.3) of the Income Tax Act, the Nisga’a Nation and each Nisga’a Village is deemed to be a municipality in Canada.

 

Is it possible to have a treaty that recognizes your nation’s inherent right to territory, self-determination, and self-government but ancillary “Agreements” that subordinate parts of the treaty (Chapter 16 taxation) to the Crown and its agents (i.e. CRA)? Can one say that the Nisga’a Nation and its citizens exist as “another order” of government? Clearly, with regard to taxation powers, the Nisga’a Nation does not have provincial status and definitely nothing close to the Westphalian notion[8] of state sovereignty. Canada’s “interference” with, or “displacement” of, the surplus/wealth creation and sharing/redistributions customs, practices, and laws inherent in a First Nation’s legal tradition seems to go unquestioned.

 

3. Who administers First Nation tax laws – collection and enforcement?

What is most interesting for me is that, except for property taxes (the levying and administration of which are delegated municipal government authorities), the Canada Revenue Agency (CRA) is delegated the authority to collect participating First Nations’ taxes.  For example, as per the CRA-Nisga’a tax administration agreement for its personal income tax law:

This Agreement is an agreement referred to in paragraphs 3 and 4 of the Taxation Chapter of the Nisga’a Final Agreement; Nisga’a Lisims Government desires to exercise its power of direct taxation under the Nisga’a Final Agreement; The Nisga’a Nation wishes to enter into a tax administration agreement with Canada, pursuant to which Canada will administer and enforce the Nisga’a Personal Income Tax Act and collect Income Tax payable under the Nisga’a Act and will make payments to the Nisga’a Nation in respect thereof, in accordance with the terms and conditions of this tax administration agreement;[9]

Just to clarify, the above agreement is not part of the final Nisga’a Agreement or the Nisga’a Taxation Agreement. It is a third agreement that emanates from Chapter 16 [taxation] of the Nisga’a final agreement. The obvious reason for such an agreement is economic - “economies of scale”. Why should First Nations replicate the CRA if they can “piggyback” this administrative capacity?  After all, except for Quebec [for all taxes] and Alberts [corporate income tax], all the provinces and territories have these agreements with the CRA who collects their taxes for free.

The cliché “there is no free lunch” applies here.  First, the CRA keeps all penalties and interest it levies on non-compliant taxpayers.  This is not a small amount of money so, worst case scenario, the CRA recoups its costs.  Second, when defined as self-determination, self-government, and possessing legal jurisdiction for all its affairs, including taxation, First Nation “sovereign” is eroded. If they are really another “order” of government, they should have some oversight/accountability authority built into their agreements with the CRA.

As it stands now, CRA officials in the performance of their delegated or assumed tax administration role effectively are free to pierce the jurisdictional boundaries of First Nations.  In other broader contexts doubts about whether the CRA officials are properly or thoroughly accountable for their administrative actions despite the existence of a Taxpayers’ Bill of Rights and an Office of the Tax Ombudsman. For example, the Auditor General has criticized the efficiency and diligence with which the CRA performs its responsibilities, sometimes to the detriment of affected taxpayers and there is evidence that many complaint made to the Ombudsman’s office were simply referred back to the CRA at a not insignificant cost for each complaint.  The point of this comment is not to presage, necessarily, unhelpful practices on the part of the CRA in the administration of First Nations’ tax affairs, but to note, simply, that there may be reasons to be concerned whether in those circumstances some of the more broadly based concerns would be present, to the detriment of the First Nations.[10]

 

4. Should the CRA continue to administer First Nation taxes?

Is it prudent for First Nations to adopt Canada’s taxation system given the general laments of CRA administrative abuse and/or negligence?  Is it a reasonable conclusion that First Nation sovereignty will be undermined when and if Canada’s tax system is incorporated into First Nation surplus creation and the CRA administers the “redistribution” part of this system? Let us consider some hypotheticals.

 

• The Nisga’a Nation has privatized, for private home construction, less than 1% of its lands. This means that Nisga’a citizens can hold these lands in fee simple. What would happen if the CRA alleges an income tax liability on the part of one of these private property holders? What if the property owner disputes the assessment but does not follow the CRA’s objection and appeal protocols because this person does not believe that the CRA should have the right to pierce the sovereignty of the Nisga’a Nation?  Also, what if this person happens to be a senior official in the Nisga’a Executive Committee? What then?  Can the CRA put a lien on the property? What “powers” does the Nisga’a Executive Committee have in this situation?

 

• What about the cost to comply with tax obligations, e.g. a small business in its initial development stage may find it an overwhelming task to create and maintain the accounting/financial systems required for sales tax return filing and/or tax audits. This is especially important for goods and services taxes where a small tourism business, for example, would have to keep detailed records regarding section 87 “status Indians” who may visit the Nisga’a Nation. The Nisga’a Nation undoubtedly wants to create jobs and grow its surplus creation entities and structures. An onerous compliance burden could stifle economic activity on Nisga’a territory.

 

• A Nisga’a citizen should get a tax refund but the CRA decides to audit this person. The auditor requests several documents which require a lot of “running around” to gather. But the Nisga’a citizen is really counting on the refund to be made timeously. He/she does not understand why another audited is being done on him/her because the CRA did an audit last year and the year previously.  Because of the audit, the refund is delayed by months. It causes the taxpayer to incur penalties for non-payment of business or personal debts he/she had planned to pay off with the refund.

 

Having said the above, I am left with three questions: (1) Should the CRA continue to have the power to collect and enforce First Nation tax laws when these Nations are supposed to be “sovereign”? (2) Like Quebec, is there not an alternative administrative structural/institutional arrangement, that would carry out this function but have an “arms-length” accountability to participating (i.e. those with tax laws) First Nations? (3) Could an institution like the First Nations Tax Commission[11] be augmented to assume this role e.g. if it is made independent of the Ministry of Finance? Obviously, there are lots of questions in need of answers.

 

- Saro Persaud (Queen's University, PhD candidate)

 

 

[1] VOLUME 2  Restructuring the Relationship, 3, Governance, p. 104

[2] Ibid.

[3] The Nisga’a Peoples are the original peoples of the Nass Valley area in North West British Columbia. The landmark 1973 Supreme Court of Canada Calder case regarding inherent title  was brought by this Nation.

[4] There are currently 25 modern treaties in effect and 22 contain economic measures with procurement obligations. These 25 modern Treaties are located in Yukon (11), Northwest Territories (4), Nunavut (1), Quebec (4), Newfoundland and Labrador (1) and British Columbia (4).

[5] 1. Nisga'a Lisims Government may make laws in respect of direct taxation of Nisga'a citizens on Nisga'a Lands in order to raise revenue for Nisga'a Nation or Nisga'a Village purposes.

2. Nisga'a Lisims Government powers provided for in paragraph 1 will not limit the powers of Canada or British Columbia to impose or levy tax or make laws in respect of taxation.

[6] 3. From time to time Canada and British Columbia, together or separately, may negotiate with the Nisga'a Nation, and attempt to reach agreement on:

1. the extent, if any, to which Canada or British Columbia will provide to Nisga'a Lisims Government or a Nisga'a Village Government direct taxation authority over persons other than Nisga'a citizens, on Nisga'a Lands; and
2. the coordination of Nisga'a Lisims Government or Nisga'a Village Government taxation, of any person, with existing federal or provincial tax systems.
3. Nisga'a Lisims Government and Nisga'a Village Governments may make laws in respect of the implementation of any taxation agreement entered into with Canada or British Columbia.

[7] According to the CRA: “As a result of amendments to the Income Tax Act, which came into force on January 1, 2012, municipal and public bodies performing a function of government in Canada that want to be recognized as qualified donees must apply for registration and be added to a list maintained by the Canada Revenue Agency (CRA). As qualified donees, they will be eligible to issue official donation receipts and to receive gifts from registered charities.”

[8] Westphalian system: A global system based on the principle of international law that each state has sovereignty over its territory and domestic affairs, to the exclusion of all external powers, on the principle of non-interference in another country’s domestic affairs, and that each state (no matter how large or small) is equal in international law. The doctrine is named after the Peace of Westphalia, signed in 1648, which ended the Thirty Years’ War.

https://courses.lumenlearning.com/boundless-worldhistory/chapter/nation-states-and-sovereignty/#:~:text=Westphalian%20system%3A%20A%20global%20system,matter%20how%20large%20or%20small). Accessed July 16, 2020.

[9] https://www.canada.ca/en/department-finance/programs/tax-policy/aboriginal/tax-administration-agreements/first-nations-personal-income-tax/nisgaa-nation-2013.html.  Accessed June 15, 2020.

[10] See for example, this from Report 7 – Compliance Activities - Canada Revenue Agency

7.22, Our analysis supporting this finding presents what we examined and discusses the following topics:

• Inconsistent time given to respond to requests for information
• Inconsistent offering of proactive relief to taxpayers
• Inconsistent waiving of penalties and interest
• Different audit completion times across Canada
• Untimely and incomplete processing of results of compliance activities

See also, https://www.cbc.ca/news/politics/cra-call-centre-auditor-general-1.4412061  Accessed January 12, 2019, and, concerning the Office of the Tax Ombudsman, see Dale Barrett – Managing Partner of Barrett Tax Law. This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc. https://www.thelawyersdaily.ca/articles/9446/ombudsman-not-protecting-rights-of-taxpayers. Accessed June 21, 2020, for similarly directed commentary.

https://www.oag-bvg.gc.ca/internet/English/parl_oag_201811_07_e_43205.html. Accessed June 15, 2020

[11] The First Nations Tax Commission (FNTC) is a shared-governance First Nation public institution that supports First Nation taxation under the First Nations Fiscal Management Act and under section 83 of the Indian Act. The purpose of the FNTC goes far beyond property tax and local revenues. The FNTC is also about creating the legal, administrative, and infrastructural framework necessary for markets to work on First Nation lands, creating a competitive First Nation investment climate, and using economic growth as the catalyst for greater First Nation self-reliance. The FNTC ensures the First Nations tax system is operating efficiently, is well coordinated, improves economic growth for First Nations, and is responsive to on-reserve taxpayers. We assist First Nations in creating laws and by-laws, as well as provide training and dispute resolution services.

https://www.kamloopschamber.ca/list/member/first-nations-tax-commission-kamloops-346#:~:text=The%20First%20Nations%20Tax%20Commission,property%20tax%20and%20local%20revenues. Accessed January 20, 2020