OTTAWA - Interest earned by natives from accounts held on reserves is tax free, the Supreme Court of Canada ruled Friday.
The court overturned a pair of rulings from the Tax Court of Canada and the Federal Court of Appeal, which held that such earnings were taxable.
Both cases dealt with interest income from deposits in caisses populaires, or credit unions, but would presumably apply to deposits with any financial institution on a reserve.
The lower courts ruled that since the institutions earned their money in the general economy, the interest is taxable.
The high court said that is irrelevant and what counts is that the money was native property on a reserve, which is tax-exempt under the Indian Act.
The lower courts "reasoned that the caisse populaire generated its revenues in the 'economic mainstream', not on the reserve, and therefore that the interest it paid . . . was not situated on the reserve," Justice Thomas Cromwell wrote in the main case.
"In my respectful view, the interest income paid . . . was situated on a reserve and was therefore exempt from taxation."
He said the question of how the credit union earned money doesn't apply, because the deposit was essentially a loan to the institution by the customer and what was done with the money didn't matter.
The court ruled 7-0 in the first case, which involved the estate of a Quebec man named Rolland Bastien. That decision set out the general rules.
The second case, which involved deposits held by Alexandre Dube in a credit union on a reserve different from his own, was a 5-2 split decision.
The dissenting judges said the facts in the Dube cases didn't have as many concrete connections to the reserve and wouldn't qualify. Dube lived off-reserve part-time and ran an off-reserve business.
Writing for the majority, though, Cromwell said the same principles apply.
"Applying the analysis set out in Bastien, my respectful view is that the Tax Court and the Federal Court of Appeal erred in both the approach they took and in the result they reached in this case."