7 ABORIGINAL TAX ISSUE
The
Aboriginal Communities (ABCOM) participated in this proceeding to advance the
position that First Nations should not pay the portion of the electricity bill
associated with the recovery of AE’s income taxes payable, where services are
provided to First Nations situated on reserves. ABCOM’s argument is based on
s.87 of the Indian Act, RSC 1985, c.I-5 (IA):
87. (1) Notwithstanding any other Act of Parliament
or any Act of the Legislature of a Province, but subject to section 83, the
following property is exempt from taxation, namely,
(a) the interest of an Indian or a band in
reserve lands or surrendered lands; and
(b) the
personal property of an Indian or a band situated on a reserve.
(2) No Indian or band is subject to taxation in
respect of the ownership, occupation, possession or use of any property
mentioned in paragraph (1)(a) or (b) or is otherwise subject to
taxation in respect of any such property.
ABCOM
argued that electricity is “property” for the purpose of section 87, that a
Board order is an “act of the Legislature”, and that a Board order approving
AE’s income taxes payable constitutes a prohibited form of “taxation”.68
AE and REA/AAMDC
both disagreed with ABCOM’s interpretation of section 87, taking the position
that section 87 does not exempt ABCOM from paying AE’s income taxes payable as
the tax is not payable by First Nations, but rather by AE itself. AE stated
that although the cost of the income tax is passed on to First Nations, since
AE pays the taxes it cannot be said that the federal government is taxing the
property of First Nations. REA/AAMDC argued that since AE is required by law to
pay income tax, this would be payable regardless of whether AE passed on the
cost to First Nations. REA/AAMDC noted that if Indians were excluded from
paying the income tax portion, AE’s other customers would have to bear the
increased burden of the income taxes payable. REA/AAMDC submitted that this
outcome is not contemplated by section 87.69
AE noted
that while electricity may be property, it does not sell electricity; rather,
AE sells a service of providing customers with the ability to obtain
electricity. Further, AE argued that there is no property interest transferred
upon the sale of the service so this service cannot be said to be property.70 ABCOM disagreed stating
that this does not render the tax exemption provisions of the IA inoperable.71
68 Exhibit 14-001, ABCOM Evidence, pp. 5-10
69 REA/AAMDC Argument, pp.20-22
70 AE Argument, pp.27-28
71 ABCOM Reply Argument, p. 2
68 • EUB Decision 2005-025 (
2004 Phase II
Distribution Tariff ATCO Electric Ltd.
ABCOM
requested that the Board either:
• approve the application on the condition
that AE create a new Indian Distribution Tariff rate that excludes AE’s taxes
payable
• establish Rider F where First Nations
electricity consumers would see a credit on their bills equal to the portion of
their bill associated with the recovery of AE’s income taxes payable
• consider this issue as an element of a
larger regulatory problem to be resolved with a generic hearing.
AE and
REA/AAMDC both cited Decision 2000-9 in which the Board dealt with a similar
request. In that decision, the Board concluded it did not have jurisdiction to
deal with this issue:
The Board is not convinced of the merit of the
Treaty 7 Bands argument that money earned on federal Indian lands by CWNG is
not taxable, nor is this a matter that is within this Board’s jurisdiction.72
REA/AAMDC submitted that the only options for ABCOM in regard to this
issue are:
• lobby the federal government for changes to
the legislation
• sue the federal government for recovery of
the income tax component of the commodity price
• apply to Court to have read into the
federal legislation the necessary wording.
REA/AAMDC
argued that the Board does not have jurisdiction because it is not a taxing authority
and has no control over the imposition of income tax on AE. ABCOM argued that
the Board does have jurisdiction as it has an obligation to ensure a tariff
that is just and reasonable and that does not contravene other legislation,
namely section 87 of the IA.73
The
Board is being asked to make a determination regarding the interpretation and
applicability of section 87 of the IA and to exempt First Nations from
paying AE’s income taxes payable for where services are provided to First
Nations situated on reserves.
The
Board must first determine whether this matter is within its jurisdiction. In
doing so, the Board must consider which parties are subject to its
jurisdiction. In this case, AE is the entity subject to the Board’s regulation
and as such, is before the Board with this Application. In determining AE’s
revenue requirement in the Phase I DTA, one of the items the Board reviews is
AE’s income tax payable. In doing so, the Board looks at the income tax status
of the AE corporate structure. In certain cases, the Board may assess the
income tax status of other entities within the utility’s corporate structure to
ensure that the regulated utility is not being charged with a disproportionate
share of the income taxes payable by the corporate structure on a consolidated
basis. For example, in the case of AltaLink,74 the income tax status of the limited partners
of the AltaLink limited partnership was examined in determining the revenue
72 Decision 2000-9 Canadian Western Natural Gas
Company Limited 1997 Return on Common Equity and Capital Structure & 1998
GRA – Phase I, p.159
73 ABCOM Reply Argument, p.7
74 Decision 2003-061: AltaLink Management Ltd.
and TransAlta Utilities Corporation Transmission Tariff for
EUB Decision 2005-025 (
2004 Phase II Distribution Tariff ATCO
Electric Ltd.
requirement.
The Board does not, however, look at the income tax status of AE’s customers as
this is not relevant to the determination of AE’s revenue requirement.
As
indicated, the focus is on whether the regulated utility (taking into account
the corporate structure of the utility) pays income tax, not on whether any
particular customer is subject to income tax. This applies equally to setting
just and reasonable rates for a utility, and the establishment of the utility’s
revenue requirement. In this case, AE is required to pay income tax under
federal law. The Board does not have jurisdiction to exempt AE from paying
income tax. Further, any exemption from paying income tax which First Nations
may receive does not flow through to AE. That is, AE does not receive the
benefit from any such exemption. As a result, the Board finds that the income
tax status of First Nations is not a matter that the Board must address to
determine AE’s revenue requirement or its rates. Given the facts of this case,
the Board does not consider it necessary to embark upon an analysis of the case
law cited by the parties, as it is the income tax status of AE that the Board
must consider.
75 Tr., p. 72; pp. 77-79
76 Tr., p.
70 • EUB
Decision 2005-025 (