The Canada Revenue Agency (CRA) has recently been assessing tobacco wholesalers that sell their cigarettes and other tobacco products to status Canadian Indians, on federal Indian reserves, for GST/HST that CRA says should have been collected because their purchasers were dealing with the tobacco on a commercial basis -- something that we would have thought was completely contrary to section 87 of the Indian Act, and the historic exemption from all taxation provided to Indians in respect of property situation on a reserve.

Indeed, one would have thought that the question as to whether tobacco sold and delivered on reserve to a status Indian was exempt of GST/HST was rhetorical (the answer being “yes” per the very clear wording of section 87 of the Indian Act, and over 20 years of CRA policy to the same effect), but it appears that the CRA is attempting to float a “commercial mainstream” argument in favour of its position.

A recent decision of the Federal Court of Appeal (FCA) in Kelly (2013 FCA 171), appears to underline the errors in the CRA’s current assessment position, and appears to confirm that the clear words of section 87, govern the day, even when the sales to the Indians on reserve are clearly for commercial purposes (e.g., resale to other persons ... natives and non-natives alike).

Tobacco wholesalers being assessed for GST/HST on their sales on reserve ought to get legal advice, and dispute this over-zealous and misguided CRA assessment policy.

Robert G. Kreklewetz and Jenny Siu

Millar Kreklewetz LLP, Toronto