6 September 2002 Internal T.I. 2002-0153867 - Status Indian Telework

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:

Is the employment income of a status Indian who participates in a telework arrangement exempt by virtue of section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act where the alternative work location is on a reserve?

Position: Generally, Yes

Reasons: The income is covered in the Guidelines.

							September 6, 2002

	XXXXXXXXXX  TAX SERVICES OFFICE	HEADQUARTERS
	Business Enquiries Unit			Aboriginal Affairs and
							 Non-Profit Section
	Attention:  XXXXXXXXXX 			Cornelis Rystenbil, CGA
(613) 941-6547

							2002-015386

Telework and status Indian

We are responding to your electronic mail of July 24 and your letter of July 30, 2002, wherein you ask whether the employment income of a status Indian employee who teleworks on reserve would be tax-exempt.

You have indicated that the particular employee is employed with XXXXXXXXXX and is returning to the work environment after a two-year leave of absence due to a stress-related illness relating to a previous work environment. As part of her re-integration plan, the employer has agreed to her request to work under a telework arrangement. The employer and the employee entered into a telework agreement (the "Telework Agreement"). Other employees of the employer have entered into telework arrangements even though the official place of work remains the employer's office and not their homes. In this particular employee's case, she did not have space in her home to telework so she asked the band council on the nearby XXXXXXXXXX reserve to provide her with office space in the band council office. The band council agreed to her request. Her employer agreed to this arrangement and provided her with the required office equipment. Since the employee is only required to go into the employer's office for one day a week, the employer has indicated on the TD1-IN that approximately 75-80 percent of her employment duties are performed on reserve.

Our Comments

Under paragraph 81(1)(a) of the Act and section 87 of the Indian Act, an Indian's personal property situated on a reserve is exempted from tax. The courts have previously determined that, for purposes of section 87 of the Indian Act, the reference to personal property includes employment income. In the 1992 case of Williams v. The Queen, the Supreme Court of Canada reconsidered 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.

Based on the guidance provided in the Williams case and after receiving representations from interested Indian groups and individuals, we identified the most relevant connecting factors that should be used to determine whether employment income is situated on a reserve. We realized that it would be very difficult for a status Indian taxpayer to determine whether his or her employment income would be exempt from taxation. Consequently, we used these relevant connecting factors to develop the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") to assist status Indian individuals in making this determination.

We note that the Guidelines represent our interpretation of the courts' application of the relevant laws. The Guidelines are a tool to assist status Indian taxpayers to determine 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.

The term "telework" is defined on page 2 of Treasury Board's Telework Policy as "a flexible work arrangement whereby employees have approval to carry out some or all of their work duties from a telework place". The term "telework place" is defined as "the alternative location where the employee is permitted to carry out the work otherwise performed at or from their designated workplace". The Guidelines themselves do not make any specific reference to the location where an employee is required to work and all of the examples published with the Guidelines contemplate situations where the employee is working at a location determined by the employer. In our view, for purposes of the Guidelines that take into consideration the location where the duties of employment are performed, the most relevant locations are the locations at which the employee is required to perform the duties.

Although participation in the employer's telework program may be voluntary, it is our view that the terms and conditions set out in the Telework Agreement are binding on the employer and employee until such time as the Telework Agreement expires or is terminated. While participating in the telework arrangement outlined in the Telework Agreement and until such a time as the Telework Agreement is terminated, the employment duties performed by the above-noted taxpayer at her on-reserve work location are considered employment duties performed on a reserve for purposes of the Guidelines. In our view, where the employment duties are actually performed on the reserve, the proration rule contained in Guideline 1 could apply to exempt that portion of her employment income earned on reserve.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate