Abstract

The Indian Act provides an exemption from taxation to Indians or bands in respect of their real and personal property that is situated on a reserve. The Supreme Court of Canada has declared that the purpose of this tax exemption is to protect Indians from losing their property through the imposition of taxes. This thesis examines the protection rationale behind the tax exemption and argues that the Crown's fiduciary obligation underlies this policy of protection. This means that the Crown would be in breach of its fiduciary obligation if it did not provide a tax exemption that exempts Indians from all forms of Canadian taxation in respect of Indian lands and personal property on such lands. Against this background, the interpretation and application of the exemption is examined in order to determine where there are inconsistencies between how the exemption applies in practice and how it ought to apply based on theory.

The main problems in practice are interpretative, as courts are interpreting the exemption narrowly in an effort to prevent perceived abuses. The argument is made that the “connecting factors” analysis that is used to determine whether or not property, including income, is located on a reserve is too ambiguous to be a workable approach in the context of taxation. Another main problem is that courts are limiting the exemption by applying the connecting factors analysis in a way that considers whether the property in question is in the commercial mainstream as opposed to integral to reserve life. Some possible solutions to these problems are identified, including the argument that there is an aboriginal right to an exemption from taxation that is constitutionally protected by s. 35(1) of the Constitution Act, 1982.