2 August 2002 Ministerial Correspondence 2002-0153404 - STATUS OF INDIAN WORKING IN MILITARY

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 CCRA.

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

Principal Issues: The existence of special taxation rights in respect of Aboriginal people working in the military.

Position: General Comments given

Reasons: No special taxation rights, the Guidelines may apply.

Signed on August 2, 2002

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Elinor Caplan, Minister of National Revenue, has asked me to reply to your correspondence addressed to the Honourable Robert D. Nault, Minister of Indian Affairs and Northern Development, concerning your eligibility for an exemption from the Goods and Services Tax (GST)/ Harmonized Sales Tax (HST) and the provincial sales tax. Mr. Nault forwarded a copy of your letter to Minister Caplan on July 8, 2002.

In a telephone conversation of July 17, 2002, with Ms. Claire Groulx, an official with the Excise and GST/HST Rulings Directorate, you also enquired about your eligibility for an exemption from the income tax.

The Canada Customs and Revenue Agency (CCRA) is responsible for the administration of the Excise Tax Act, the Act that governs the GST/HST, and of the Income Tax Act as passed by Parliament. Matters pertaining to the application of the Nova Scotia provincial sales tax fall under the responsibility of the Nova Scotia Department of Finance. If you should have any further questions concerning the provincial sales tax, I invite you to contact the Nova Scotia Department of Finance by writing to Post Office Box 187, Halifax NS B3J 2N3, or by calling 424-5554.

The GST, and the HST in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland, applies to most goods and services sold or provided in Canada, unless specific provisions in the Excise Tax Act allow for relief from the tax. There is no specific provision in the Excise Tax Act or the Income Tax Act to exempt individuals in the Canadian Armed Forces from taxation.

To ensure that the historical tax exemptions provided for Indians and Indian bands under the Indian Act continue to be protected, the CCRA adopted administrative guidelines when the GST was first introduced in 1991. These guidelines were designed to provide the relief from taxation that is guaranteed under the Indian Act, and are detailed in the CCRA's Technical Information Bulletin B-039R, GST Administrative Policy - Application of GST to Indians. I am enclosing a copy of the bulletin, for your reference.

Section 87 of the Indian Act provides tax relief for the personal property of an individual Indian or Indian band situated on a reserve, together with interests in reserve lands. The CCRA's administrative policy is fully consistent with the tax-relieving provisions of the Act that affect the personal property of an Indian or Indian band situated on a reserve. Specifically, goods acquired by individual Indians, Indian bands, and band-empowered entities on reserve or delivered to a reserve by the vendor or the vendor's agent, are not subject to GST/HST. The acquisition of services by individual Indians, Indian bands, and band-empowered entities is also relieved of tax when certain conditions are met, for example, when the service is performed totally on a reserve.

However, section 87 of the Act does not establish any right to relief from the GST/HST for individual Indians if there is no reasonable basis on which to connect the acquisition of personal property to reserve lands. Although it is not a requirement that an Indian be a resident of a reserve to obtain the GST/HST relief, it is a requirement, with respect to taxable goods, that the property acquired by an individual Indian be sold or delivered to a site that is officially recognized as a reserve.

In respect of your employment income, the courts have previously determined that, for purposes of section 87 of the Indian Act, the reference to personal property situated on a reserve includes employment income. The Supreme Court of Canada considered the approach to use in determining whether income is situated on a reserve and concluded that the proper approach in determining the situs of personal property is to evaluate the various connecting factors that tie the property to one location or another.

After receiving representations from interested Indian groups and individuals, the CCRA identified the most relevant connecting factors that should be used to determine whether employment income is situated on a reserve. The CCRA realized that it would be difficult for a status Indian taxpayer to determine whether his or her employment income would be exempt from taxation. Consequently, it used these relevant connecting factors to develop the Indian Act Exemption for Employment Income Guidelines to assist status Indian individuals in making this determination. I am also enclosing a copy of the Guidelines, for your reference.

The Guidelines represent the CCRA's interpretation of the courts' application of the relevant laws. The Guidelines are a tool to assist status Indian taxpayers in determining whether their employment income is exempt from taxation in certain specific situations. In drafting the Guidelines, we recognized that there would be certain unusual or exceptional situations where the income may not be taxable even though it does not fall within one of the guidelines or the income may be taxable even though it appears to fall within one of these guidelines. The determination of whether there are sufficient connecting factors to connect income to a reserve is always a question of fact.

Since you do not live on a reserve and your employer is not resident on reserve, Guidelines 2, 3, and 4 would not apply to exempt your employment income from taxation. When substantially all of your duties of employment are performed on a reserve, all of your employment income would be exempt from income tax. If a portion of the duties of your employment is performed on a reserve, the prorata rule contained in Guideline 1 may apply to the portion of the employment income related to the duties performed on the reserve. For your information, crown land is generally not considered to be a reserve for purposes of the Indian Act.

If you require additional information on this or any other GST/HST matter, I invite you to contact Mr. Brian Basden, Manager, Atlantic GST/HST Rulings Centre, by writing to Post Office Box 638, 1557 Hollis Street, Halifax NS B3J 2T5, or by calling 426-6940. Mr. Basden is aware of our correspondence and will be pleased to provide assistance.

Thank you for having taken the time to write. I trust that this explanation will be helpful.

							Yours sincerely,

							Bill McCloskey
							Assistant Commissioner
							Policy and Legislation Branch

Attachments

c.c.: Mr. Brian Basden

Manager
Atlantic GST/HST Rulings Centre
Post Office Box 638
1557 Hollis Street
Halifax NS B3J 2T5

Originators:

Claire Groulx
Ministerial Correspondence Unit
Excise and GST/HST Rulings Directorate
Policy and Legislation Branch
957-3150

C. Rystenbil
Income Tax Rulings
Policy and Legislation Branch
941-6547
2002-015340