Home Partner News Media Releases Mainstream News Opportunities Multimedia Events Press Release March 19, 2024 Executive Summary Since 1876, the Indian Act has contained a tax exemption for real and personal property owned by Indians, a either individually or collectively, on Indian reserves. The purpose of the exemption was to protect the reserves, which were federal Crown property set aside for the use and benefit of First Nation people, from being taken over by local or provincial governments for non-payment of taxes. The exemption is consistent with the general principle of Canadian law that one government cannot tax another government, and it has effectively served its purpose of protecting reserve land from confiscation by local governments. It is also arguably consistent with the principle of equality before the law, which says that people should be divided into legal categories only when there is a demonstrable difference between groups that is relevant to public policy. The Supreme Court of Canada’s decision in the Nowegijick case (1983) extended the exemption to include income earned, or purchases made, by Indians on reserve. This special privilege applying to the approximately one million Registered Indians in Canada has no logical foundation and serves no obvious purpose of public policy. Its main outcome has been to generate resentment by the other 39 million Canadians who are required to pay taxes on income and sales. Not being part of the Constitution, the tax exemption for Registered Indians on income and sales could and should be rescinded by federal legislation. The revenue gained by taxing Registered Indians’ income and sales could be returned to the First Nations to help them support their own governments, making self-government less of a slogan and more of a reality. Since the 1980s, some progress has been made in this direction. Changes in legislation have allowed about 160 First Nations to create their own property taxes. These, however, are levied mainly on leases of reserve land to outsiders, such as those underpinning railways, pipelines, commercial parks, and residential developments. The next logical step would be to extend such taxes to reserve property held by Indians in the form of Certificates of Possession. Federal legislation has also created two different ways in which reserve governments can charge sales taxes for on-reserve transactions. Used by a few First Nations, these do have an impact on their own members, though most of the revenue they generate comes from non-members shopping on reserve. Finally, there is a form of income tax used by First Nations who have signed modern-day treaties under which their lands are not reserve lands in the sense of the Indian Act and hence do not carry a tax exemption. This income tax applies mainly to First Nation people who are employed by the band government and who are ultimately paid by the federal government. In practice, it ensures that federal transfers supporting the community stay within the community. These small-scale forms of property, income, and sales taxation are all praiseworthy initiatives created by cooperation between First Nations and the federal government. They belie the common belief that the Indian Act must be totally repealed because it cannot be amended. In fact, Indigenous policy, like all other policy areas in Canada, is susceptible to gradual improvement through consultation, negotiation, and legislative amendment. These time-honoured democratic processes have also been used on a small scale, and can be extended further, to modernize the taxation of Registered Indians. In a constitutional democracy like Canada, there is little justification for exempting one subset of Indigenous people from taxation. Sharing in the expense of government is a mark of true citizenship and self-government that should gradually be extended to all Canadians. Introduction Equality before the law is a bedrock principle of constitutional government and liberal democracy. Of course, citizens sometimes need to be divided into categories for purposes of public policy. The needs of women differ in some ways from the needs of men, and children require special protection under the law, as do seniors who are no longer able to look after themselves. But such legal categorization should always be linked to demonstrable differences in need between classes; otherwise, it is merely a way for some groups to use the state to profit at the expense of others. This paper examines one case of special fiscal treatment in Canada: the exemption from taxation of property on Indian reserves or of income earned by Registered Indians on reserves. This a unique situation in Canadian law. No other race, ethnic group, religion, or cultural community enjoys such a privilege. b 1 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. Not surprisingly, the tax exemption enjoyed by Registered Indians has often 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. The examination of special fiscal treatment for one subcategory of Indigenous Canadians must be placed in this context: The historic and existing government spending on Indigenous Canadians, contrary to perceptions or claims by some, has been substantial and often in addition to what was and is required by treaties or the Constitution. For example, a pathbreaking piece of research published by the Fraser Institute found that federal spending on Indian programming rose from $79 million in 1946-47 to almost $7.9 billion in 2011-12. Even after allowing for inflation, the growth of the welfare state, and the rise in the Aboriginal population, this increase was more than twice as high as the increase in per capita federal spending on Canadians generally. 2 And the dramatic rise has continued since then. Indigenous spending was projected at over $27 billion in Budget 2022, 3 and over $29 billion in Budget 2023. 4 Canada now spends more on Indigenous programming than on national defence. This growth in spending was initially driven by the growth of the welfare state as the federal government tried to provide better education, medical care, and other social services to Indigenous people. More recently, however, compensatory payments for alleged past injustices are playing an increasing role. This trend started with a settlement of over $5 billion to residential school “survivors” negotiated in 2005. 5 Numerous other lawsuits have been settled since Justin Trudeau’s Liberal government came to power in 2015, the largest being a $43.3 billion settlement for children taken from Indian reserves into foster care, 6 and others are still under negotiation. What used to be the Department of Indian Affairs is well on its way to becoming a Department of Indigenous Reparations. Given the significant expenditures on First Nations specifically and Indigenous Canadians more generally, this paper explores the current situation of Indigenous taxation in Canada as well as the historical development of the tax exemption, concluding with some recommendations for change. Since the minister of Crown-Indigenous Relations has recently stated that the Indian tax exemption is up for review, 7 it is a propitious time to make some suggestions. IBF6
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