There is nothing that elicits quite so much excitement in a discussion about aboriginal affairs in Canada as the notorious tax exemption embodied in s. 87 of the Indian Act. In the popular mind this exemption renders Indians 'tax free'. In fact, nothing could be further from the truth. In fact the exemption is a very narrow exemption tied to a historical policy where the governments set aside small tracts of land (the reserves) and then said that everything else was free for the taking.
In practice this means that for most Indians the tax exemption is worth next to nothing. When most of the reserves were set up, particularly outside of British Columbia, great pains were taken to make sure that land that might be potentially useful for settlement, agriculture, forestry, mining or most any other purpose was excluded from the reserves. Thus, there are a few reserves that are situated anywhere that is likely to produce jobs, rent or resource revenue that would lift anyone living on them above the level of destitution (there are a few spectacular exceptions to this rule). Thus most Indians make their income and spend their money in the 'commercial mainstream' and thus pay taxes on their income and transactions like every other Canadian. A recent pair of rulings from the Federal Court of Canada (Horn and Williams) made clear the narrowness of this exemption in holding that a business arrangement designed to extend the exemption to work done for the community in Toronto failed to get the benefit of the s. 87 tax exemption. Sadly, that picture does not make for such good rhetoric about race-based tax systems and the like.