In Baldwin et al v the Queen, 2014 TCC 284, the Tax Court of Canada had an opportunity to consider section 87 of theIndian Act and when employment income is “situated on a reserve” for tax purposes.


Each of the five Appellants was employed by Native Leasing Services (NLS). NLS is owned and operated by a status Indian who resides on a reserve. NLS provides employment placement services to not-for-profit Aboriginal organizations, and offers support services, including payroll services, human resource support, employee leasing/outsourcing, bookkeeping and staffing. Only NLS’ administrative staff provided services on the reserve. None of the Appellants worked on a reserve, and only one of them had a residence on a reserve, which she lived in on weekends. Each provided services to various Aboriginal organizations through NLS in various cities in Ontario and Quebec.


The Court rejected an approach to s. 87 of the Indian Act that focused on the situs of the employment income, finding that this test had been overturned by the Supreme Court of Canada in Williams v Canada, [1992] 1 SCR 877, and confirmed inBastien Estate v Canada, 2011 SCC 38. Both of those decisions establish that the “connecting factors test” now applies to determine the location of intangible personal property under s. 87.

The “connecting factors test” has two steps: 1) identify potentially relevant factors tending to connect the property to a location, and 2) determine the weight that should be given to the factors in light of three considerations: the purpose of the exemption from taxation, the type of property and the nature of the taxation of that property.

In this case, the Court examined the following factors: the location of the employer, the location where the Appellants were paid, the Appellants’ residence, and the location, nature of the services performed and the special circumstances in which they were performed. The Court concluded that the most important factor to consider in this case was the location and nature of the work performed by the Appellants given the type of property at issue, namely employment income.

The Court concluded that none of the Appellants’ employment indicated any connection to a reserve. All services were performed off-reserve and to Aboriginal peoples living in the city in which the organization was located. Any work done with people on-reserve was merely incidental to the main services provided. As a result, the Appellants’ employment income was found to be situated off-reserve and thus, taxable.

The Take Away

This decision confirms that the test to be applied in determining whether employment income is situated on a reserve is the connecting factors test. This test essentially looks at the strength of the connection between the employment (and the employment income) to a reserve. Where that connection is weak, the employment income will be situated off a reserve and subject to tax. As a result, it is likely that if the employment is undertaken almost exclusively off-reserve, with no substantive connection to a reserve (i.e., the reserve or its residents benefit from the employment), any resultant income will be taxable.