Canada’s Indigenous policy has officially been one of “reconciliation” between Indigenous Canadians and non-Indigenous Canadians since the Liberals came to power in 2015. Too many Indigenous Canadians remain on the margins and billions have been spent to remove obstacles to success.
But it takes two to reconcile. There are also obstacles that Indigenous Canadians could remove to achieve reconciliation.
One of the biggest is the income tax exemption that applies only to status Indians. While every other Canadian is taxed on their income, status Indians are completely exempt from paying income tax.
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Technically, only reserve residents living and working on reserves are entitled to this exemption. However, even some high-income city dwellers and businesses exempt their income by claiming a residence on a reserve. And there are now many chiefs and business people living on reserves who pay absolutely no income tax, despite having six-figure incomes. The highest chief’s salary revealed during the brief tenure of the First Nations Financial Transparency Act was $1 million a year, but there were many other large salaries. Current salaries are unavailable because the federal government buried the legislation.
There are also many successful Indigenous business people in Canada. Some are millionaires. This is a good thing. But those wealthy business people should be paying their share of taxes.
There’s great unfairness here and it doesn’t go unnoticed by the general public. The universal sentiment is that we should all pay our fair share of taxes for the government services we use. Why should Indigenous people with healthy incomes be exempt from paying their fair share?
Status Indians are entitled to special rights their ancestors bargained for under treaties. But an income tax exemption wasn’t one of those rights. Income taxation came to Canada long after treaties were signed.
Status Indians are also entitled to special provisions under the Indian Act. But the act was also enacted long before income tax was created. In fact, the entire Indigenous income tax exemption rests on a very slender thread. A single badly decided case in 1983 made a tenuous income tax connection to a section in the Indian Act preventing creditors from seizing property on reserves. Parliament could easily end the unfair Indigenous income tax exemption with the stroke of a pen.
The irony is that the income tax exemption does not benefit the majority of dependent or working poor Indigenous people on reserves. Their earnings aren’t sufficient to give them any significant benefit. The benefit goes to the well-heeled politicians, lawyers and business people who get this windfall at the expense of ordinary taxpaying Canadians – many of whom earn far less.
Ending the income taxation would end one of the irritants that stand in the way of reconciliation. In fact, the income tax exemption has been identified as one of the main reasons why the archaic and racist Indian Act is still with us.
Ending the income tax exemption could lead to a gradual phasing out of all of the legal differences that stand between Indigenous Canadians and mainstream Canada. Status Indians could be compensated for surrendered rights with a one-time payment and the Indian Act could once and for all be consigned to history’s trash can.
Time to end both the Indigenous income tax exemption and the Indian Act?
Brian Giesbrecht, a retired judge, is a senior fellow at the Frontier Centre for Public Policy.
Brian is one of our Thought Leaders. For interview requests, click here.
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