Insurance premium tax exemption for B.C. First Nation with no reserve

Qayqayt First Nation in B.C., which purchased a surety bond from a U.K. insurer as collateral for a bank loan to fund a legal action against the Crown for taking away its land, does not have to pay tax on the unlicensed insurance because of an exemption for “personal property situated on a reserve.”

The case provided a dilemma for the Court of Appeal for British Columbia since Qayqayt does not own any reserve land. In fact, the Band’s legal case — for which it acquired the insurance — was based on the argument that the Crown and a railroad had taken away the Band’s land at the turn of the 19^th century. To buy the surety bond, Qayqayt First Nation had to rely on the Band on the Capilano Reserve to approve and sign the insurance documents.

In all other similar legal cases, the Appeal Court noted, the tax exemption under the Indian Act for “property situated on a reserve” was actually connected to an existing reserve. And so, in this case, the Appeal Court read in a meaning that supported early Supreme Court decisions that “treaties and statutes relating to Indians should be liberally construed and doubtful expressions resolved in favour of the Indians.”

“I acknowledge that viewed objectively, the proposition that the stream of income subject to [B.C.’s Insurance Premium Tax Act] is ‘situated on a reserve,’ when in fact the Band no longer has a reserve, might seem highly doubtful,” B.C. Appeal Court Justice Mary Newbury wrote in a unanimous decision for the three-judge panel. “The Supreme Court of Canada has directed that courts are…to consider ‘connections’ of various kinds between the property in question and ‘a reserve.’

“In my view…the connections between the insurance premiums and ‘a reserve’— albeit one that has allegedly been taken from the Band — could, as the Band submits, hardly be stronger.

“It seems to me that in this era of reconciliation, courts should recognize that traditional ways of interpreting statutes in relation to First Nations may be inadequate in unique fact situations such as the one before us. At the end of the day, the extension of the phrase ‘personal property situated on a reserve’ to include ‘personal property strongly connected to a reserve’ seems a small step, and an appropriate one.”

The Qayqayt First Nation resides on its traditional territory near New Westminster. It intends to seek compensation from Canada under the Specific Claims Tribunal for what it says was the unlawful taking of five parcels of land that had been set aside as a reserve for the Band under the authority of Sir James Douglas prior to British Columbia’s joining Confederation. A second claim concerns the taking of land by a railway company for a right‑of‑way in 1891. These claims have been “accepted for negotiation” by Canada, but as of yet no negotiations have taken place.

The Band doesn’t have enough money to pay counsel to advance its legal claims. It therefore entered into a loan agreement with the Canadian Imperial Bank of Commerce in May 2016, when the bank agreed to loan the money to the Band to finance the costs of its legal action.

The band then entered into two “First Nations Legal Funding Insurance Policies” with an insurer called AMTrust Europe Ltd., a company based in London, U.K. Basically, the policies provided that if the policyholder [the Band] had not received a “financial return” equal to the amount of the bank’s loan (up to just under CA$3 million), AMTrust would insure the Band to the extent of any shortfall in the amount available to repay the bank’s loan.

The Band went to the province to make sure the $70,000 tax owed for the insurance policy was exempt under the Indian Act. The province argued the tax applied, although it refunded about $25,000 from the payment. The Band took the matter to court and won at the lower level.

The initial Chambers judge ruled the Band was not “a person” under the Insurance Premium Income Tax Act, so it was exempt from paying the tax. He further found the exemption under the Indian Act for “property situated on a reserve” did not apply, since the Band did not have any reserve land.

The B.C. Finance Ministry appealed the decision. The Appeal Court upheld the decision, albeit for the opposite reasons of the motion judge. The Band was a “person” under the Insurance Premium Income Tax Act, the Appeal Court found. But it was exempt from the premium tax under the Indian Act, based on the court’s understanding that “property situated on a reserve” should be more widely defined as “property strongly connected to a reserve.”

“Looked at from the Band’s perspective, it is only because its reserve lands were apparently wrongfully taken by the Crown and the railway company that the proceedings before the Specific Claims Tribunal became necessary,” the Appeal Court ruled. “Those proceedings in turn necessitated the purchase of the insurance from AMTrust.

“In the Band’s analysis, had the wrongful taking not occurred, the Qayqayt First Nation would have had a reserve. It would then be regarded as residing, and the stream of premiums payable under the policies would likely have been enforceable, on that reserve. (Of course, the transactions with the bank and AMTrust would not have been necessary in any event.)

“In my respectful view, a purposive analysis of [the tax exemption under the Indian Act] as intended to protect the reserves of First Nations from the depredations of governments and creditors leads to the conclusion that although the Band is now without a reserve, and may never recover its reserve lands per se, its efforts to obtain compensation under the Specific Claims Tribunal Act for the taking of its reserve are still connected to ‘a reserve.’”

Feature photo courtesy of iStock.com/Photogilio