29 March 2000 External T.I. 1999-0004275 - INDIANS-EMPLOYEE LEASING

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.Has the 1999 adverse decision by the FCTD in the Shilling case resulted in any change to the Indian Act Exemption for Employment Income Guidelines?

2.If affairs are arranged to reflect the situation in Shilling, what happens if employers do not withhold tax and the employees do not follow the Guidelines?

Position:

1. No changes to the Guidelines.

2. Interest charges and penalties may be assessed.

Reasons:

1.Since the judgement in Shilling has been appealed by CCRA, no changes will be made to the Guidelines until the issues are resolved by the courts.

2.Interest charges and penalties may be applicable if the obligations are not respected. Employees who fail to file, file late or fail to include all income taxable may be assessed or reassessed and may be liable to interest and penalties. Employees that file in accordance with the Guidelines, may file objections to protect themselves if the outcome of the appeal of the Shilling case is favourable to them.

XXXXXXXXXX 1999-000427
S. Parnanzone
March 29 , 2000

Dear XXXXXXXXXX:

Re : Indian Act Exemption - Employee Leasing

We are replying to your letter of August 24, 1999, concerning the 1999 decision of the Federal Court, Trial Division in the Shilling case and its effects on the Indian Act Exemption for Employment Income Guidelines.

As you may be aware, the Guidelines were developed by the Canada Customs and Revenue Agency (the "Agency"), formerly the Department of National Revenue, after the decision of the Supreme Court of Canada in the Williams case (92 DTC 6320), which dealt with the approach to be used in determining whether income is situated on a reserve. The Agency has appealed the judgement in the Shilling case, and until such time as the matter is resolved by the courts, the Agency will apply the Guidelines as presently written. Consequently, the application of the Guidelines to leased employees is not changed.

In a situation where an employer fails to withhold tax at source that should have been withheld or fails to remit tax withheld, the employer may be subject to penalties and interest as explained in Chapter 1 of the Employers' Guide to Payroll Deductions - Basic Information. In the case of a corporate employer, the directors are jointly and severally liable, together with the corporation, to pay the amount not deducted or not remitted and any relating penalties and interest. The employers' obligations are discussed in the above-mentioned Guide.

Individuals who fail to file tax returns when required to do so, file late or fail to include in their income all amounts that are subject to tax may be assessed or reassessed and may be liable to penalties and interest charges as explained in the 1999 General Income Tax and Benefits Guide under the heading Filing your return (page 7).

Taxpayers who disagree with their tax assessments as well as taxpayers who apply the Guidelines in filing their tax returns but wish to protect themselves should the outcome of the appeal of the Shilling case be favourable to them are encouraged to file objections, as explained in the 1999 General Income Tax and Benefits Guide under the heading After you file (page 8).

If you do not already have the Guides referred to above, you can find them on the Internet at: http://www.ccra-adrc.gc.ca

We trust that the foregoing comments are of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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