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: Whether a status Indian employee is exempt form tax on his employment income.
Position: No
Reasons: The employee does not live on reserve, he does not perform more than 50% of his duties of employment on reserve and the employer is involved in commercial activities.
1999-000841
XXXXXXXXXX Karen Power, CA
(613) 957-8953
March 8, 2000
Dear XXXXXXXXXX:
Re: Tax Exemption for Status Indian
We are writing in response to your letter of November 21, 1999, requesting our views on whether your employment income is exempt from taxation. You have specifically requested whether your wages for the period of XXXXXXXXXX would be considered as income earned on reserve and, as a result, exempt from taxation.
You have provided us with the following facts.
1. You are a status Indian who does not reside on reserve.
2. During the period of XXXXXXXXXX, you were employed by XXXXXXXXXX (the "Employer").
3. The Employer is a company owned by a group of XXXXXXXXXX First Nation reserves of XXXXXXXXXX and is required to locate its main points of operations off-reserve for technical and physical reasons. You have indicated that The Employer's XXXXXXXXXX operations exist only for the benefits of their reserves and their residents. XXXXXXXXXX.
4. The Employer's head office is located on reserve. The executive officers of the company are located on reserve and the central management and control of the company takes place on reserve. The Employer's profits are returned to the owner communities to improve the social conditions of their residents.
5. XXXXXXXXXX. More than 90% of business activities of the company are strictly for the benefit and services of the local First Nation communities and their residents.
6. In order to effectively serve the First Nation communities most of the Employer's employees need to reside off-reserve close to the operational centres XXXXXXXXXX.
An advance ruling is a written statement given by the Department to a taxpayer stating how it will interpret specific provisions of existing Canadian tax law in its application to a definite, proposed transaction or transactions which the taxpayer is contemplating. Full disclosure is required and where the transaction is to be completed at some indefinite future time or where satisfactory evidence is lacking that a proposed transaction is being seriously contemplated the request for an advance ruling may be refused. Additionally, where a matter on which a determination is requested is primarily one of fact and the circumstances are such that all pertinent facts cannot be established at the time of the request for the advance ruling, an advance ruling will not be granted.
An advance ruling cannot be issued because your request involves a completed rather than proposed transaction. Although an advance income tax ruling will not be issued on this matter, we have provided you with the following comments.
As explained by the XXXXXXXXXX Tax Services Office, 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 reserve. The courts have previously determined that, for purposes of section 87 of the Indian Act, the reference to personal property includes employment income. In Williams (92 DTC 6320), the Supreme Court of Canada reconsidered the approach to use in determining whether income is situated on reserve. The proper approach in determining the situs of personal property is to evaluate the various connecting factors which tie the property to one location or another.
Based on the guidance provided by Williams and after receiving representations from interested Indian groups and individuals, the Canada Customs and Revenue Agency ("CCRA") identified a number of connecting factors that can be used to determine whether employment income is situated on 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.
Guideline 1 would apply to exempt all of the income of an Indian if at least 90% of the employment duties are performed on a reserve. When less than 90% of the duties are performed on a reserve and none of the other guidelines apply, only the portion that is performed on a reserve is exempt from tax (the proration rule).
Guideline 2 would apply to exempt the employment income of employees who live on reserve provided that the employer is resident on reserve.
Guideline 3 would apply to exempt all of the income of an Indian if more than 50% of the employment duties are performed on a reserve and the employer is resident on a reserve or the Indian lives on reserve.
Guideline 4 requires that the employer is resident on a reserve. It also requires that the employer is an Indian band which has a reserve, or a tribal council representing one or more Indian bands which have reserves, or an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves, and that the duties of the employment are in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indian who for the most part live on reserve. These elements must all be satisfied in order for Guideline 4 to apply.
As indicated, time spent travelling to and from the reserve would not be considered time spent on reserve. In our view, Guidelines 1, 2 & 3 will not apply to exempt your employment income, as you resided off-reserve and less that 50% of your duties of employment were performed on reserve.
In addition, Guideline 4 would not apply to exempt your employment income as the Employer's activities are commercial in nature. However, the proration rule to Guideline 1 may apply to exempt the portion of the employment income that relates to your employment duties performed on reserve.
Your request makes reference to a recent judgment in the Federal Court of Canada in which it was held that the employment income of a status Indian, with fewer connecting factors than yourself, was exempt from tax. The recent decision to which you refer, is likely the case of Rachel Shilling v. Her Majesty the Queen. The CCRA has examined the judgment in the Shilling case and the judgment has been appealed. Consequently, until such time as the matter is resolved by the courts, the CCRA will apply the Indian Act Exemption for Employment Income Guidelines in its current format.
We trust our comments will be 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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