18 March 2004 Internal T.I. 2004-0047851I7 - Taxation of status Indian employment income

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.

Principal Issues: The taxpayer is a status Indian who works for an employer who occupies, at least in part, premises formerly occupied by a company which was the employer in the case of Amos and Mark v. the Queen. The taxpayer seeks confirmation that her employment income is tax-exempt so that we can advise her employer not to deduct income tax at source.

Position: Question of Fact. Referred to TSO for a determination.

Reasons: Whether the case of Amos and Mark v. the Queen applies to this taxpayer can only be determined by examining the facts. It is possible that the current facts of her situation are distinguishable from the case. We do not have sufficient information to determine whether any of the Guidelines would apply.

			March 18, 2004

	XXXXXXXXXX  TAX SERVICES OFFICE		HEADQUARTERS
				Income Tax Rulings
	Attention:  XXXXXXXXXX 			  Directorate
				Renée Shields
(613) 948-5273

				2004-004785

Taxation of Status Indian Employment Income

This is in response to a letter the Income Tax Rulings Directorate ("Rulings") received from XXXXXXXXXX regarding the taxation of her employment income. We understand that XXXXXXXXXX contacted your offices requesting that you provide a letter to her employer confirming that her employment income is tax exempt and authorizing the employer not to withhold income tax at source. She was referred to Rulings and has reiterated her request.

Although we do not have an extensive description of the facts from XXXXXXXXXX correspondence, it appears that the situation can be summarized as follows. XXXXXXXXXX is a status Indian. She works for a company called XXXXXXXXXX (the "Employer"). The Employer seems to operate its business out of premises formerly occupied by a pulp mill operated by XXXXXXXXXX (the "Pulp Mill"). It is not clear whether XXXXXXXXXX resides on a reserve, nor do we have any information about the residence of the Employer.

The employment income of status Indian employees at the Pulp Mill was the subject of a 1999 Federal Court of Appeal ("FCA") decision known as Amos and Mark v. the Queen 99 DTC 5333 ("Amos"). In our opinion, the facts in Amos are particularly significant in addressing XXXXXXXXXX request. The Pulp Mill operated on slightly over 500 acres of land. Of these, 28.8 acres were reserve land leased from the Nootka Band (the "Band"). These 28.8 acres represented approximately 74% of the total acreage of the reserve. The mill itself was located on land owned by the Pulp Mill (the "Contiguous Lands"). The leased reserve land was used for storing fuel and woodchips used in the operation of the Pulp Mill. Under the terms of the lease of the reserve land, the Pulp Mill agreed to give preference in employment to Band members. We understand that the Pulp Mill closed in February 1999.

In determining that the income of reserve-resident status Indian employees of the Pulp Mill should be tax exempt, the FCA commented at paragraph 5 that, "The Band agreed to surrender the reserve for leasing purposes on the understanding that, inter alia, the lease would promote the employment of Band members. The lease so provided." At paragraph 6 the FCA went on to say, "From the point of view of Band members, this surrender of the reserve was in part for the procurement of access to employment that would flow from having the pulp mill operation established on, and contiguous to, their land."

In XXXXXXXXXX situation, we have no confirmation that the Employer, like the Pulp Mill, operates in part on land leased from the Band. Furthermore, even if it does, we have no information as to whether the conditions that existed in the lease in Amos exist here. In our opinion, an investigation into the facts is necessary in order to determine whether XXXXXXXXXX employment situation is substantially similar to or distinguishable from that in Amos.

If XXXXXXXXXX situation is distinguishable from Amos, then the question remains whether her employment income would be exempted by any of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"). It would be a question of fact for determination by the TSO whether she is performing her employment duties on a reserve such that Guideline 1 would apply. (By way of clarification, we note that the Amos case did not hold that the Contiguous Lands of the Pulp Mill were reserve lands but rather that in the facts of the case, there were sufficiently significant connecting factors to locate the employment income on a reserve). With respect to Guideline 2, as noted above, it is similarly a question of fact for determination by the TSO as to whether XXXXXXXXXX and the Employer reside on a reserve. A determination of the foregoing factual matters is also required in order to ascertain whether Guideline 3 would apply. Finally, in our view Guideline 4 would not apply to XXXXXXXXXX employment situation.

We trust that these comments will be of assistance in addressing XXXXXXXXXX inquiry.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada 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 severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Roxane Brazeau-LeBlond, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch