People ask, "Why are tax exemptions available to First Nations?" But, try to explain the current status of First Nations taxation or why exemptions were implemented in early treaties and eyes glaze over, yawns are stifled and people head for the exit. Few issues raise the ire of certain Canadians as does First Nations taxation-or the supposed lack of it. Yet, it's a topic few can discuss with clarity or precision.

First Nations assert they enjoy a comprehensive immunity from all forms of Canadian taxation, based on Aboriginal and treaty rights. The federal government, on the other hand, is involved in an aggressive campaign to directly and indirectly tax First Nations.

It may be the most important issue facing First Nations over the next decade, and the battle lines have been drawn.

The First Nations hold they are comprehensively immune from all forms of Canadian taxation (federal, provincial and municipal). The immunity applies within the traditional territories of First Nations, that is to say, throughout Canada. This immunity, claim First Nations leaders, is not restricted to Indian Act reserves.

The immunity flows from the historical relationship between First Nations and the Euro-Canadian settlers.

First Nations exemption from taxation in legislation goes back a long way. In 1850, the Province of Canada enacted a law stating that no taxes would be levied or assessed against an Indian person or anyone married to an Indian person.

It also stated that no taxes or assessments would be levied against either an Indian person or someone married to them if they resided on Indian lands not ceded to the Crown. It went further to say that taxes and assessments would not be levied against them even if they lived on lands that had been ceded to the Crown, but had been set aside for Indian occupancy.

By 1876, this exemption was codified in the Indian Act. It remains in the Indian Act to this day, and it has been preserved in most modern treaties such as the 1975 James Bay Agreement and the 1984 Western Arctic Agreement. In treaties such as the 1899 Treaty #8, where tax immunity does not appear as part of the text, it remains as an official part of the record.

First Nations leaders negotiated tax exemptions with the Crown as a partial return for the sharing of the land and its enormous potential for the production of wealth through farming, timber, mining and oil exploration. They knew they were sharing something very valuable and, they expected something of value in return.

At the same time the Canadian government had a clear indication of what it was getting.

It's not by chance that a major treaty signing period in mid-northern Ontario began in 1850-immediately after an intense ten-year period during which geological surveys had located and mapped Ontario's wealth of natural resources.

So, by treaty and other means, most First Nations agreed to share some of their lands and resources with the settlers. This generosity has led directly to the immense wealth of the Canadian state and private sector.

In effect, First Nations have paid their "taxes" into eternity.

This seems to be a major sticking point with some people. Without considering the staggering amount of wealth turned over to the federal and provincial governments through the treaty making process, contemporary critics demand that everyone should be treated the same and no person or group should receive "special privileges."

Others hold to the position that any attempt by a Canadian government to tax a First Nation today amounts to double taxation and may have the effect of re-opening the original sharing arrangement for lands and resources.

The immunity also flows from the inherent right of self-government held by First Nations. This right is recognized and affirmed by section 35 of the Canadian Constitution Act, 1982. Pursuant to that right, First Nations have complete and exclusive jurisdiction over fiscal issues, including taxation.

First Nations leaders argue that Canadian taxation laws cannot interfere with this inherent jurisdiction.

The federal government does not recognize the comprehensive tax immunity asserted by First Nations. While the entire taxation issue (like all other First Nations issues) is complex, it is clear to all that First Nations people do indeed pay taxes.

Canadian courts have ruled that residents of First Nations reserves should pay sales tax, Employment Insurance premiums and taxes on goods in a wide variety of situations.

While there appears to be ample room for debate on the issue of First Nations tax exemption it remains true that substantial taxes are being paid. At Casino Rama, a First Nations business initiative at Mnjikaning First Nation on Lake Couchiching, 150 km north of Toronto, the province takes a 20% win tax from gross revenues. On one month's gross revenues of $45 million, the province will receive $9 million. If the casino tops $400 million in one year (not an unlikely scenario), the province stands to gain $80 million in revenues from the win tax.

The casino also pays millions in PST and GST.

First Nations business ventures off reserve and individuals living and working off-reserve also pay tax-GST, PST and Income Tax. Some have suggested, the amount they pay is equivalent to the amount of revenue which ultimately filters down to First Nations communities through the Department of Indian Affairs.

Many First Nations people are suggesting, since there is little employment in isolated First Nations communities, they are forced to find work and live elsewhere. They argue they should be tax exempt.

However, the Canadian view is that the tax exemption of First Nations is restricted to the narrow confines of section 87 of the Indian Act In simple terms, section 87 only protects the on reserve property of status Indian people and "bands." First Nations view section 87 as only a partial reflection of their entitlement to comprehensive immunity.

The federal government has made it clear that it has no intention of discussing comprehensive immunity on a nation-to-nation basis. On the contrary, the federal government is prosecuting and defending court cases on a daily basis across the country with the sole objective of restricting even the narrow exemption contained in section 87.

The aggressive federal litigation strategy flies in the face of the original intention of tax exemption as declared in the 1850s and throughout the treaty making process. It is inconsistent with the spirit of the fiduciary relationship between the Crown and First Nations.

Some have suggested, and they may be correct, that government officials promised anything and everything in order to get the First Nations to surrender their rights to the land-free education, free medicine, free homes and no taxes.

Intense pressure was brought to bear on First Nations to surrender their land and equally tremendous pressure was brought to bear on the negotiators to swing a deal. It must be remembered that between 1867 and 1949-less than 1 00 years-Canada grew from four tiny, squabbling colonies huddled along the St. Lawrence River to the second largest country in the world.

Where land was surrendered, it was accomplished through the give-and take of negotiated settlements, nation to nation treaties.

The promises made to acquire that land, First Nations argue, must be adhered to. Tax exemption, in their eyes, is part of the historical fabric of the nation-building process. It's an indelible part of the understanding reached between the First Nations and the Crown when Indian nations were asked to share their land.

Current governments, short on cash and determined to balance budgets, argue that Indian and Northern Affairs is a drain on the economy. Some argue that tax exemptions were put in place as a temporary measure to protect Indian people from unscrupulous whites and to enable Indians to assimilate. Once Indians became "civilized" this protection would no longer be necessary.

The situation is made more difficult by imprecise terminology: What is meant by taxation? What is meant by exempt? How do we define residency?

What is an Indian?

In view of the gulf between the First Nation and Canadian positions on taxation, it is not surprising that there have been some flash-points.

The universally hated GST is a flash point. Canada wants on-reserve retailers and other entities to collect and remit GST.

Many, if not most, First Nations have refused to comply, in spite of relentless pressure from Revenue Canada. First Nations say the GST collect-and-remit function is inconsistent with the inherent right of self-government and with comprehensive tax immunity. However, over the last two or three years, Revenue Canada has pursued First Nations retailers with great energy, and several test cases are now before the courts.

It is noteworthy that during the federal election campaign of 1993, several prominent Liberals committed to support the First Nations position on taxes, particularly in relation to the GST. The promise-givers included Jean Chretien, Sheila Copps and Paul Martin.

The promises were brushed aside after the election and the new government refused to make any concessions to First Nations on the GST and other key tax issues.

The ReCalma Case

Relying in part on on-reserve branch banks, many First Nations individuals and entities have begun to invest in interest bearing securities and equities. This trend is positive for the long-term financial health and independence of First Nations. Unfortunately, Revenue Canada has chosen to aggressively test the legal limits of taxation of on-reserve investments. In the ReCalma case from British Columbia, the Federal Court of Appeal decided that certain kinds of investments were not sufficiently connected to a reserve and therefore were subject to taxation. The particular form of investment under consideration in ReCalma was a banker's acceptance or BA.

ReCalma is now before the Supreme Court. Once again, the fiduciary for First Nations (i.e. the federal Crown) is arguing that the section 87 Indian Act exemption should be restricted even further. ReCalma will likely have a defining effect on future on-reserve banking and investment patterns.

Since the February 1995 budget the federal government has been tightening the financial lid on the national Indian program. Growth has gone from approximately 8% on an annual basis to 2% for 1998-99. The program envelope will be completely frozen for the millenium (1 999-2000) at 0%.

It has been argued this super-aggressive fiscal policy is completely unjustified given the recommendations of the Royal Commission on Aboriginal Peoples (RCAP) and given the huge surpluses the federal government is now running on a monthly basis.

The First Nations population is growing faster than the Canadian average. Those children need health care and schooling. Its adult population is aging and requires senior care. Communities need to provide services to their residents: housing, municipal services, water, sanitation, etc. Costs are spiraling.

Basic program entitlements and standards cannot be met for very long in the face of the Indian program freeze. Expansion and enhancement of services are impossible.

Indian Affairs intends to transfer this impossible dilemma to First Nations by means of the Financial Transfer Arrangement (FTA), the new model financial contract for communities and organizations.

In the context of FTA implementation, Indian Affairs is demanding consolidated audit information from all First Nations. In a few years this information will be used against First Nations. Communities with measurable independent revenues will see their program grants reduced. In effect they will be taxed.

Communities will also be "encouraged" to impose local taxes in order to make ends meet under the FTA.

The federal government has worked with some band councils to pass bylaws that will impose a First Nations Tax (FNT) on certain products, namely alcoholic beverages, fuel and tobacco products.

In British Columbia, the Kamloops First Nation has imposed a 7% FNT since September 1, 1998, and everyone who sells a listed product on the reserve, regardless of who the purchaser is, will have to collect the FNT And, everyone who buys a listed product on the Kamloops First Nation pays the FNT. If the FNT applies to the product, the GST/Harmonized Sales Tax (HST) will not apply.

In addition, if a product is sold off-reserve but the goods are delivered to the Kamloops community, the Kamloops FNT will apply to the sale of the product.

Effective February 1, 1998, Westbank First Nation in British Columbia also imposed a 7% Westbank FNT on tobacco products only.

The Chiefs of Ontario, and especially the Association of lroquois and Allied Indians, are watching this turn of events with considerable interest.

The outlook right now is not very good

The federal government is pursuing an aggressive litigation strategy in all parts of the country designed to narrow the section 87 exemption to the disappearing point. The federal government has breached undertakings to review the application of the GST to First Nations and to renew the bilateral fiscal relationship.

In a few months, the national Indian program envelope will be frozen, probably for the first time since the Korean War. By the proposed FTA, First Nations will be obliged to accept open-ended liability for huge social programs and to tax their own citizens.

In the face of this bleak outlook, First Nations are still strong in their unity. Communities are clear in their support for comprehensive tax immunity, based on history in general and the treaties in particular. More than ever, vigilance will be required on the political and legal fronts. Federal strategies, like the FTA, must be confronted. First Nations agendas must be implemented.

The Ontario Regional Chief and the Chiefs of Ontario office will continue to work with First Nations and organizations to advance the First Nations fiscal agenda. In particular, the Association of lroquois and Allied Indians (AIAI) have been unceasing in their efforts on the GST.

Special thanks are due to AIAI Grand Chief Doug Maracle and analyst Chris McCormick.