4 February 2000 Ministerial Letter 1999-0004388 - TAXATION OF INDIAN FISHERS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

February 4, 2000

XXXXXXXXXX

Dear XXXXXXXXXX:

I am replying to your letter of July 30, 1999, addressed to my predecessor, the Honourable Herb Dhaliwal, concerning the location at which the majority of commercial fishery work is done. The Honourable Robert D. Nault, Minister of Indian Affairs and Northern Development, also sent me a copy of his letter of November 29, 1999, concerning the same subject. As you may be aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

In general terms, it is section 87 of the Indian Act, along with paragraph 81(1)(a) of the Income Tax Act, that establish the exemption from taxation for status Indians. Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve, and the courts have previously concluded that the reference to personal property in section 87 includes income. In determining whether the income earned by an Indian is situated on a reserve, and thus exempt from taxation, the approach taken by the Supreme Court of Canada in the 1992 case of Glenn Williams v. Her Majesty the Queen is followed. This approach requires the examination of all factors connecting income to a reserve to determine if the income is located on the reserve. The Supreme Court also indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian to personal property situated on a reserve.

Generally, in determining whether business income is exempt, the CCRA places considerable emphasis on the location of where the business activity is carried on, with a lesser emphasis on the location of the customers. This position was upheld in the Federal Court of Appeal case of Henry Southwind v. The Queen which is the leading case dealing with the business income of an Indian. While certain activities may be carried on in an on reserve office, such as the maintaining of books and records, the actual revenue-generating activities would be more significant in determining whether business income is connected to a reserve.

In a fishing business, the location where the fishing is done is a connecting factor of major importance. Generally, fishing is done off reserve. Some revenue-generating activities such as preparation, dressing and packing of the fish for market take place on reserve. In such a situation, if a portion of the revenue-generating fishing activities are carried on a reserve, a portion of the business income would generally be exempt. However, it is the CCRA's view that the main activity of a fishing business is the fishing itself. Accordingly, the revenue-generating activities involved in preparing the fish for market may exempt a small portion of the business income.

It should also be noted that where a portion of income from a business is exempt and the remaining portion is not exempt, the expenses which pertain to the exempt portion are not deductible. Normally, expenses should be allocated in the same proportion as revenue unless another allocation could be shown to be more reasonable in the circumstances.

I trust that my comments explains the CCRA's position on this matter.

		Yours sincerely,

		Martin Cauchon