The Indian Act and Business Restrictions on First Nation Reserves in Canada

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Doing Business

THUNDER BAY – Analysis – One of the opportunities across Canada is for Indigenous businesses to start and to thrive. There are many examples of this success for businesses off-reserve. However for a lot of Indigenous businesses, operating on the First Nation is made more difficult than it should be due to the Indian Act.

The Indian Act, first passed in 1876, has long governed the relationship between the Canadian government and the Indigenous peoples of Canada. While the Act covers a wide array of subjects related to Indigenous rights and governance, one of its most controversial aspects pertains to the economic activities of First Nations people, specifically regarding the establishment and operation of businesses on reserves.

1. Property Rights and Land Ownership: Perhaps the most fundamental constraint on business activity in reserves arises from land ownership issues. The Indian Act ensures that reserve lands are held collectively. While this protects the land from being sold or taken away, it also means that individuals cannot use the land as collateral for loans. Without this ability, entrepreneurs on reserves face significant challenges in securing the capital they need to start or expand their businesses.

2. Limitations on Business Structures: Another limitation is the lack of a legislative framework on reserves that facilitates the creation and operation of businesses. Most off-reserve businesses in Canada operate under provincial legislation, but because reserves fall under federal jurisdiction, provincial laws like the Business Corporations Act do not apply. This complicates things like issuing shares, attracting outside investment, or adopting various corporate structures.

3. Regulatory Gaps: The Indian Act doesn’t fully address many aspects of commercial activity, leading to a regulatory gap. This means that businesses on reserves might not have clear guidelines or standards in areas ranging from health and safety to environmental protection. The absence of clear rules can discourage investment and leave businesses on shaky legal ground.

4. Bureaucratic Restrictions: There are also specific sections of the Indian Act that can impede business. For instance, Section 89 protects the property of a “status Indian” on a reserve from being seized by non-Indigenous creditors. While this provides protection for individuals, it complicates business operations, especially when trying to secure loans or credit.

5. External Control and Influence: The Indian Act grants the Minister of Indigenous and Northern Affairs Canada extensive power over many reserve activities. Historically, this has included decisions about how and where economic activities can take place. While this level of oversight is diminishing, it still poses challenges to First Nations autonomy and the ability to make agile business decisions.

Positive Changes and the Future:

There have been positive shifts in recent years, with increased pushback against the restrictive elements of the Indian Act. A number of First Nations communities have signed the First Nations Land Management Act, which allows them to opt out of the land-related provisions of the Indian Act and create their own land codes.

Moreover, there are First Nations communities that have found success in various ventures, from tourism to resource management, demonstrating the potential that exists when given the autonomy and resources to operate businesses.

However, for more systemic and widespread change to occur, there needs to be both a reform of the Indian Act and increased economic collaboration between First Nations and the Canadian government.

The restrictions have long-term implications, not just for the economic prosperity of First Nations communities, but for the broader Canadian economy as well. Embracing a future where First Nations businesses can thrive without undue restrictions will benefit all Canadians.

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