"UI Benefits Ruled Tax-Free for Natives"

Ottawa - A Supreme Court of Canada ruling that an Indian does not have to pay income tax on unemployment insurance benefits will cost the federal government millions of dollars in tax revenue and refunds.

The unanimous ruling by seven of the high-court justices said Glenn Williams, a Penticton Indian band member, should not pay tax on the benefits since the work required to qualify for payments was performed on his reserve.

The federal Indian Act exempts native people from paying tax on income earned on reserves.

Federal government lawyers refused to comment on the impact of the decision except to say it is being reviewed.

Federal government figures show that in 1985, for example, more than $55 million was paid in unemployment insurance benefits to Indians on reserves across Canada.

At least $10 million of that would have been assessed for tax by the government, even though Indian leaders estimate that at least half of the benefits resulted from work on reserves.

Micheal Cleroux, a spokesman for Revenue Canada, said the government's new remission policy will allow Indians to seek refunds for improperly assessed taxes paid on the benefits back to at least 1985.

He added the finance department may allow remission even further back.

Greg Gabriel, administrator for the Penticton band which backed the court challenge, called the decision "a major victory" for Indians across Canada.

He said the financial impact for band members in Penticton alone will "run in the thousands of dollars."

Gary Snarch, the band's lawyer, said the ruling recognizes the unique position of Indian people under Canadian law and attempts to stop any kind of erosion to the tax exemption they are entitled to under the Indian Act.

The decision may also have an impact on other areas that are sometimes taxed such as pension plans and band companies on reserves, he said.

Bill Montour from Six Nations, a spokesman for the Assembly of First Nations, which represents most of Canada's more than 600,000 status Indians, said the decision will have a significant impact.

Williams collected unemployment insurance benefits in 1984 after working on his British Columbia reserve for a logging company and a job creation project.

His appeal to Revenue Canada after he assessed to pay income tax on the benefits was turned down.

But the Federal Court ruled in his favor before it it was appealed to the Federal Court of Appeal.

The appeal court ruled that only the benefits for the job creation project were exempt from tax.

The Supreme Court struck down this decision, ruling that benefits for both the work with the logging company and the job creation project were exempt.

Justice Charles Gonthier, who wrote last Thursday's Supreme Court ruling, concludes:

"With regard to the UI benefits received by the appellant, a particularly important fact is the location of the employment which gave rise to the qualification for the benefits received by the appellant were also located on the reserve."

Revenue Canada is in the midst of a sweeping review of Indian taxation, as part of the federal government's assessment of the expected move toward aboriginal self-government across the country.

Native groups, meanwhile, are fighting against the way the federal department has interpreted how reserve-based Indians are to pay the goods and services tax. The GST is charged for postal service on reserve, for example, but not on goods brought on or delivered to a reserve.