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.
Principal Issues:
1 ) Can an "Indian" qualify for tax exemption prior to his actual registration as an Indian?
2 ) Is the land on which the XXXXXXXXXX is located part of the reserve?
3 ) Is pension income received by a status Indian taxable?
Position:
1 ) Yes 2 ) Not enough information 3 ) Taxation of pension income received by status Indians depends on the tax treatment of the related employment income.
Reasons:
1 ) As per the definition of an "Indian" found in subsection 2(1) of the Indian Act.
2 ) Depends on what is written in the lease.
3 ) As per the Williams case, income that is ancillary to employment income, such as pension income, including Canada Pension Plan benefits, is treated the same as the employment income itself. In other words, if the employment income was exempt under the Indian Act, so too would be the pension income.
October 24, 2000
Headquarters Appeals HEADQUARTERS
Income Tax Appeals Directorate Cornelis Rystenbil, CGA
(613) 957-2060
Attention: Alex Lowe
2000-004133
XXXXXXXXXX - Taxation of Pension Benefits
This is in reply to Ms. Denise Hartman's (Burnaby Fraser Tax Services) memorandum of July 26, 2000 concerning the tax treatment of pension income received by XXXXXXXXXX (the "Taxpayer") who is a status Indian and a member of the XXXXXXXXXX (the "Band").
We understand that the Taxpayer was employed by XXXXXXXXXX (the "Company") for XXXXXXXXXX years before his retirement in XXXXXXXXXX. The Company operates a XXXXXXXXXX complex. In XXXXXXXXXX, the Company moved its operations to reserve land under a leasing arrangement. From that time forward, the Taxpayer worked on the leased reserve lands.
The Taxpayer claims an exemption from income tax on both pension and employment income on the basis that he is a status Indian who worked full time on a reserve. The Taxpayer is also requesting refunds going back to 1985 since he paid tax on the exempt income.
Paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act provide a tax exemption for an Indian's personal property situated on a reserve. The Courts have determined that employment income is personal property. Therefore, what must be determined is whether the employment income is situated on a reserve.
In determining where the employment income of a status Indian is "situated", prior to the Williams case (92 DTC 6320), direction was provided by the Nowegijick case (83 DTC 5041), when it found that the situs of the debtor determined whether income was situated on a reserve and, therefore, exempt from taxation. In Williams, however, the Supreme Court of Canada rejected the situs of the debtor test as the sole test for determining whether personal property of an Indian was situated on a reserve, indicating that "an overly rigid test which identified one or two factors as having controlling force...would be open to manipulation and abuse". The approach adopted in Williams requires the examination of all factors connecting income to a reserve to determine if the income is located on the reserve.
Based on the guidance provided in Williams and after receiving representations from interested Indian groups and individuals, the CCRA identified a number of connecting factors that can be used to determine whether employment income is situated on a reserve. With a view to assisting the Indian community, the CCRA developed the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"), incorporating the various connecting factors that describe the employment situations covered by the Indian Act.
The term "Indian", as used in the Guidelines, is defined on page 10 of the Guidelines to mean "an Indian as defined for purposes of the Indian Act". Subsection 2(1) of the Indian Act defines an "Indian" as "a person who pursuant to this Act is registered as an Indian or is entitled to be registered as an Indian", while sections 6 and 7 of the Indian Act describe persons who are, and persons who are not, entitled to be registered as Indians. Accordingly, in our view, persons who are entitled to such registration, but who have not been so registered, would be included within the meaning of the term "Indian" and as such may benefit from the provisions of the Indian Act. That is, it is the date of the entitlement to be registered and not the date of registration itself that is relevant for purposes of the exemption provided in paragraph 81(1)(a) of the Act and section 87 of the Indian Act. The onus of proving "entitlement" to registration is on the individual.
An example of a situation where a person is "entitled to be registered" as an Indian, but had not applied to be registered as such, is contained in R. v. Pritchard (1973), 9 C.C.C. (2d) 488, 32 D.L.R. (3d) 617. In that case, a person was arrested for hunting during the closed season. He gave evidence that he was entitled to be registered having met the requirements of the Indian Act, and could actually be registered if he chose to apply. The Saskatchewan District Court found that he was not guilty of the offense because he was "entitled to be registered" and was therefore an Indian within the meaning of the Indian Act.
Information in the file indicated that the Taxpayer was entitled to be registered in 1985. We presume that this was by virtue of Bill C-31 which provided for the reinstatement of eligibility of certain persons to registration as Indians. In this respect, we wish to note that section 24 of Bill C-31 provides that, with the exception of sections 17 and 18, this legislation shall come into force or be deemed to have come into force on April 17, 1985. Accordingly, the date of entitlement would be April 17, 1985 for most persons relying on the amendments contained in Bill C-31 alone, and not on the Indian Act prior to these amendments, to establish their status. It is also noted that there may be cases where the effective date may be later. For example, paragraph 6(1)(b) of the Indian Act, which relates to new bands, is somewhat narrower in its application than the other paragraphs contained in section 6 and a person relying on paragraph (b) could not come within the definition of "Indian" until the body of which he is a member has been declared to be a band.
We note that in correspondence from the representative it was stated that the Department of Indian and Northern Affairs ("DIAND") does not handle the Band's membership issues. We question what this means in respect of this Taxpayer as, from discussions with the registry office of DIAND, we understand that membership is controlled under the Indian Act and not by a band.
It was stated that the XXXXXXXXXX site is located on reserve land which has been leased to the company. It is unclear whether the "leased land" qualifies as a reserve for purposes of the exemption. The term "on a reserve", as used in the Guidelines, is defined on page 10 of the Guidelines to mean "on a reserve as defined for purposes of the Indian Act, including any settlements deemed to be reserves for purposes of the Indian Settlements Remission Order, and any other areas given similar treatment under federal legislation (for example, Category I-A lands under the Cree-Naskapi (of Quebec) Act)." According to subsection 2(1) of the Indian Act, "reserve", for purposes of the Indian Act, means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band, and for purposes of section 87 of the Indian Act, includes designated lands. "Designated lands" is defined in subsection 2(1) of the Indian Act as "a tract of land or any interest therein, the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests." The lease documents would need to be examined to determine whether, in fact, the band has other than absolutely released or surrendered its rights or interests under the lease.
The CCRA's position concerning the taxation of pension income of a status Indian is reflected in the Guidelines. In short, income that is ancillary to employment income, such as pension income, including Canada Pension Plan benefits, is treated the same as the employment income itself. In other words, if the employment income was exempt under the Indian Act, so too would be the pension income.
At present, the CCRA has not published, other than brief comments in the Employer's Guide, any guidelines or formula for determining the pro-rata share of exempt and non-exempt status Indian pension benefits. In our view, the allocation should be determined on a case-by-case basis and should be reasonable in the circumstances.
The determination of whether the employment income was exempt under the Indian Act is a question of fact which can only be resolved by an examination of all the facts. Based on the information provided, however, it appears that Guideline 1 of the Guidelines may well apply. Guideline 1 states: "When at least 90% of the duties of an employment are performed on a reserve, all of the income of an Indian from that employment will usually be exempt from income tax."
It would appear then that from the time the Taxpayer became a status Indian (1985), his employment income was exempt from income tax. As a result, subject to the verification of the information provided, in our view, he is entitled to a refund of income taxes paid. In addition, the portion of his pension related to the exempt employment income would be exempt.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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