Exam Code: Return this exam question paper to your invigilator at the end of the exam before you leave the classroom. THIS EXAMINATION CONSISTS OF 6 PAGES PLEASE ENSURE THAT YOU HAVE A COMPLETE PAPER THE UNIVERSITY OF BRITISH COLUMBIA FACULTY OF LAW FINAL EXAMINATION APRIL 13 2016 LAW 358B.001 Topics in First Nations Law: Aboriginal Taxation OPEN BOOK Adjunct Professor Welters TOTAL MARKS: 105 TIME ALLOWED: 2 HOURS and 15 minutes reading time
2 THIS EXAMINATION CONSISTS OF 4 QUESTIONS Please read all questions first and allocate your time accordingly. QuestIon 1. Hilary Clinton does not live on reserve but is a status Indian and is a member of the Healthy Waters band located in the far north-east corner of British Columbia. During the relevant years, she worked on the Washing River band s reserve, located a few hundred kilometers from the Health Waters band reserve. She worked as a counsellor for the education department of the Washing River band. She performed most of her employment duties on reserve but, due to the remoteness of the Healthy Waters band reserve, was permitted by the band to work from home 2/5 days a week. Hilary was paid by direct deposit to an account opened at a bank branch located on the reserve. A banker at that branch convinced her to open an RRSP. She did so and made annual contributions to the RRSP. Hilary filed her income tax returns each year on the basis that her income was tax exempt under section 87 of the Indian Act. The CRA has issued a tax assessment to Jane. The CRA explanation states that she had no RRSP contribution room because she filed on the basis that her income was exempt. A lack of contribution room would mean that her contributions to the RRSP were over-contributions and therefore subject to a special tax under the Income Tax Act (the overcontribution tax ). Hilary is upset and is stressed about the overcontribution tax and does not know how she is going to pay it. A different auditor at the CRA is now questioning whether her employment income was exempt. She wants to know what her options are, including her chances of successful appeal to the appeals division of the CRA and, if necessary, to the Tax Court of Canada. She also wants to know whether her income and overcontributions are exempt from tax given both Treaty 8 and the Indian Act. Marks 35 Question 2. Donald is a status Indian. Donald was raised by his family on a reserve near New Coast City, British Columbia. Donald was, for the first part of his life, a member of the DP First Nation (a band under the Indian Act), where his father was born and raised, but his mother was a member from the GOP First Nation. Donald went to live on GOP First Nation reserve and changed his band affiliation to the GOP First Nation (i.e., his Indian status card originally indicated the DP First Nation but since he got married has indicated the GOP First Nation). Donald has remained a member of the GOP First Nation and continues to live on a GOP First Nation reserve. Both the GOP First Nation reserve and DP First Nation reserve are small and located next to the ocean.
3 After grade 10, Donald became a logger, learning from an uncle who lived on the GOP First nation reserve. When the forestry industry declined, he learned how to fish through a fishermen community learning program operated by the GOP First nation. Donald has mostly earned his living from fishing, and did so during the years under audit. While fishing, Donald had a home office on reserve and kept his books and records for his fishing business at his home on reserve. He did not keep his vessel at reserve; he kept it at coastal small town because there was no available space at the reserve marine, although he was on a waiting list. Similarly, he kept his fishing equipment at a storage unit at the marine in coastal small town since that was where his vessel was. Donald s crew consisted mostly of persons resident on a reserve, but not always. Donald engaged in fishing activities pursuant to a variety of fishing licenses. Some were held personally, some by the GOP First Nation, and some by the DP First Nation. Donald sold his fish to food packers. During the years under audit, the primary purchaser of his catch was a company located in Delta, British Columbia, but he landed his catch at the marina in Coastal Small Town (i.e., he did not take his catch to Delta). GOP First Nation and DP First Nation are two of the bands that compose the eight-band Congress of Coastal First Nations. The members of the Congress speak the same language, and have very similar cultures. Whether they have the same culture is a matter of some sensitivity in the communities. The Congress has generally sought to advance the interests of all eight First Nations and has asserted an aboriginal right to fish and trade in fish and a right to hunt within certain territories. None of the claims have been proven in court. DP First Nation has entered into treaty negotiations with Canada and British Columbia. The parties are currently negotiating an area of the Pacific Ocean over which the OP First Nation will having certain specified fishing rights under the treaty (the Proposed Treaty Fishing Zone ). GOP First Nation has decided not to enter into treaty negotiations. Donald s fishing activities under the band licences occurred partly within the Proposed Treaty Fishing Zone but his fishing activities under the license he held personally did not. Over the course of the audit years about half the fish were caught under his personal license. The remainder of the catch was pursuant to the various band licences. The CRA has assessed Donald income tax on his fishing income for the audit years, which were 2008-2013. He has come to you for advice on whether he should appeal the assessment. The CRA told him that because his fishing was done off reserve he is taxable. He also wants to know if he would benefit on a going-forward basis from incorporating his fishing business and paying himself dividends instead. Marks 35
4 Question 3. Bernie Sanders, a status Indian, ives on reserve. He runs a trucking business that delivers goods through-out British Columbia. Currently, that operation is currently run through Democratic Underdog Trucking Inc. ( DUTI ). DUTI owns the trucks. DUTI purchases gasoline to fuel the trucks. One of DUTI s trucks happens to be a tanker truck for delivering gasoline. However, the tanker is for delivering gasoline to gas stations and DUTI drivers take the trucks to fueling depots to refill. DUTI pays BC s motor fuel tax, BC s carbon tax, the federal GST, and the federal excise tax on each purchase of fuel (except fuel purchased for resale). DUTI has heard about a plan to avoid tax on gasoline utilizing section 87 of the Indian Act. He s told that, to access the tax exemption, he will have to do the following: (i) DUTI will lease all the vehicles to Bernie except the tanker truck; (ii) Bernie will operate the trucking business personally (he says he has enough insurance that the loss of the corporate veil is not a concern); (iii) DUTI will purchase the gasoline and ship it to the Capilano 5 reserve (the same reserve that hosts part of Park Royal mall) where it will sell that gasoline to Bernie; (iv) Bernie will use the tanker truck to fill up his other trucks. The filling will happen on reserve. (v) Bernie s leased trucks will around the province carrying delivering goods. The relevant provisions of the Motor Fuel Tax Act are as follows (you are not being tested on calculating the total taxes, which are in any case set out for your convenience following the sections): 4 (1) Subject to subsection (1.11), a purchaser of gasoline within an area (b) inside the South Coast British Columbia transportation service region must pay to the government, at the time of purchase, tax on the gasoline at the rate of [$0.01 75/litre] (c) inside the South Coast British Columbia transportation service region must pay to the South Coast British Columbia Transportation Authority [Translink], at the time of purchase, tax on the gasoline at the following rates [$0.1 7/litre]. (1.1) If a purchaser takes delivery of gasoline within an area [...]
5 [...] (b) inside the South Coast British Columbia transportation service region, that purchaser is deemed to be a purchaser liable to pay tax under subsection (1) (b) [and] (c) [...] (3) A person who uses in British Columbia gasoline on which tax is not otherwise payable under this section must pay to the government, on or before the 15th day of the month following the month in which the gasoline is used, tax on the gasoline at the rate set by subsection (1) (a) [$O.075/lltre]. The Capilano 5 Reserve is within the South Coast British Columbia Transportation service region. Total BC fuel taxes (motor fuel tax, carbon tax, etc.) at the pump in Vancouver are $O.321 7/litre. Accordingly, Bernie will save tens of thousands in fuel related taxes a year if this plan succeeds. Bernie would like to know why he must lease the trucks to himself personally and would like to know whether the plan will succeed. (Confine your response to motor fuel taxes; you can ignore the other taxes such as GST and carbon tax.) Marks 15 Question 4. Cruz Digging is a Canadian corporation listed on the TSX Venture exchange. It has mineral claims in the traditional territory of the Southern River First Nation. The nearest community to the claims is the reserve community. Cruz Digging is in the process of raising the capital necessary to start a mine. An important hurdle is entering into an economic benefits agreement with the Southern River First Nation to ensure that Nation s support for the project. Cruz Digging is proposing the following benefits to the Southern River First Nation: employment opportunities milestone payments on the happening of various events, including issuance of an environmental assessment certificate and commencement of commercial operations rent for a right of way for a power line over reserve lands a fixed annual amount of property tax for the power line right of way and improvements (le, the power line and towers). a lumpsum payable into a trust for the benefit of the band and its members a net smelter royalty after commercial production commences shares of the corporation or units in the limited partnership, as the case may be, that operates the mine
6 The band provides health and education programs that would otherwise be delivered by Canada and British Columbia. The band has not implemented any taxes on reserve, but Canada has approached the band about implementing a First Nations GST. (i) The band has asked for your advice on the tax implications of the economic benefits agreement. (ii) How would your advice change if the Southern River First Nation had entered into a modern treaty such as those of the Maa-nulth, Tsawwassen or Nisga a? Marks 20 END OF EXAMINATION