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Since first being passed in 1876, the Indian Act has contained a tax exemption for real and personal property owned by Registered Indians on Indian reserves. (I use “Registered Indian” language as it’s the term used in the constitution, legislation, orders in council, and Canada Revenue Agency interpretation bulletins and is thus precise about which individuals are impacted by the foregoing.)
The purpose of the exemption was to protect reserve land — which was 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 when there is a demonstrable difference between groups that is relevant to public policy.
However, it is almost an iron law of politics that good ideas sooner or later lead to harmful initiatives. The Supreme Court of Canada followed that rule in the Nowegijick case (1983), which extended the exemption from taxes to include income earned, or purchases made, by Registered Indians on reserve.
If Parliament had wanted to exempt income and sales on Indian reserves from taxation, it could have said so in the Indian Act. 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 function is 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Not being part of the Constitution, the tax exemption on income and sales could and should be repealed by federal legislation. There will, of course, be resistance. No one who has enjoyed a tax exemption likes to lose it. But Parliament can sweeten the medicine by returning the revenue gained by taxing Indians’ income and sales 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 reserve governments can charge sales taxes for on-reserve transaction. Used by a few First Nations, these do impact their own members, though most of the revenue generated 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 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.
I have been speaking to audiences in Canada about Indigenous issues for more than 50 years. Throughout this time, the topic that has always aroused the most indignation is the non-payment of taxes by Registered Indians on Indian reserves. Whatever small benefit the tax exemption confers is not worth the antagonism caused by the feeling that the recipients are not pulling their weight. It is not good for taxpayers to feel that they are obliged to support one category of people, and it is not good for the recipients of this largesse to feel that their fellow citizens are obliged to support them.
Tom Flanagan is professor emeritus of political science at the University of Calgary and a Senior Fellow at the Aristotle Foundation for Public Policy and author of The Section 87 Indian Act Taxation Exemption: An Analysis
