You may not have realized it yet, but Canada's tax system, and the country itself, is on the verge of chaos.

A melodramatic statement Not in light of a recent tax ruling from the Federal Court. The ruling, for all intents and purposes, exempts Indians connected with a reserve from paying income tax, period.

Under the Indian Act, income earned on reserves by Indians living on reserves is tax-exempt, but off reserve Indians are taxed like everybody else. Now Madame Justice Sharlow has said that Indians living and working off reserve are also income tax exempt.

At issue is the practice where off-reserve Indians work "on contract", their salaries paid through a reserve-based employment agency that "leases" their services to off-reserve employers. The specific court case involved Rachel Shilling, an Indian living in Toronto and working for a social service agency. Her $47,000 salary is funneled through an employment agency called Native Leasing Services on the Six Nations Grand River reserve. The judge concluded that since her salary is through a reserve-based company, Ms. Shilling could, as a status Indian, avoid paying any income tax.

The bottom line is that it is now perfectly legal for most aboriginal Canadians (excluding Inuit, Metis or Indians whose bands have no reserves) to launder their income through reserves to avoid paying tax.

The implications of this decision are disturbing. To start with, Canada's federal and provincial governments stand to lose millions of dollars in revenue. That means that governments will either be forced to cut spending or, more likely, raise taxes levied on non-aboriginal Canadians - in effect, a tax on race.

Now a "race tax", as repulsive and undemocratic as it might be, may not bring down the pillars of Canadian society. But there is something that just might. It's only a matter of time before Indians living off reserves catch on to the fact that this little laundering scheme has much greater potential.

Let's just say, for example, that a so-called "non-Indian" (let's call him Mr. X) wanted to get in on the action. Suppose Mr. X contracted a tax-exempt Indian to do some off-reserve secretarial work for him. Mr. X pays his Indian contractor 100% of his company's annual income. Mr. X then writes this off as a business expense, reducing his taxable income to zero. His Indian contractor friend, feeling sorry for Mr. X's sad financial plight, gives him a non-taxable gift of 95% of Mr. X's original annual income. The Indian contractor doesn't really need the money anyway because he or she has been doing the same thing with dozens of other companies.

Presto, change-o! Mr. X has paid no tax and still retains 95% of his earnings. Not a bad deal, and all perfectly legal. I wonder if this little scenario ever crossed the omniscient mind of Justice Sharlow. The race tax, then, might just turn into the chaos tax, with everyone opting out of the system.

The only solution to this mess is, of course, to return to the days when all Canadians were equal before the law. That means eliminating the racism of the Indian Act, repealing Justice Sharlow's decision, and lowering the tax burden for all Canadians.