24 February 2000 Ministerial Letter 2000-0008748 - YUKON INDIANS MORATORIUM

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. Did the moratorium apply to all income sources for all Yukon Indians. 2. Did the moratorium apply to all Yukon lands or only "lands set aside."3. Does the Income Tax Remission Order (Yukon Lands) retroactively restrict the application of the moratorium.

Position: 1. The moratorium only applied to employment income. 2. The moratorium only applied to the "lands set aside." 3. The remission order was effective from 1984 and applied to all sources of income. It treats the lands set aside as if they were reserves.

Reasons: Based on a review of the previous correspondence related to the moratorium.

February 24, 2000

XXXXXXXXXX

Dear XXXXXXXXXX:

I am replying to your letter of January 10, 2000, in which you express your concerns regarding the application of a particular moratorium and Remission Order as they affect Yukon Indians.

Included with your letter were several attachments identified as Exhibits A to F. Exhibits D, E, and F are documents that were copied to you which relate to a specific taxpayer. The confidentiality provisions in section 241 of the Income Tax Act preclude me from discussing the affairs of a taxpayer without specific written authorization from that taxpayer. However, I can provide the following comments regarding the moratorium, the geographical scope of the moratorium, and the type of income addressed by the moratorium, as it applied to XXXXXXXXXX.

In response to a number of Indian taxation cases that were before the courts, and the resulting uncertainty concerning the taxation of employment income of Indians, a moratorium was put in place from 1976 to 1978 with respect to the remittance of source deductions by certain Indian organizations and to the collection of tax on employment income from status Indians whose employment situations resembled those cases being litigated.

The moratorium applied only to source deductions and to the collection of taxes on employment income. The moratorium basically extended to status Indians who are members of the Yukon First Nation, employed or living on "land set aside", the same collection treatment as status Indians working on reserves. The moratorium did not apply to other Yukon land. The moratorium was to remain in force until such time as the final Court decisions were rendered in the cases of the National Indian Brotherhood (the NIB) and Gene Nowegijick.

The moratorium was an arrangement between the Department of Indian and Northern Affairs Canada and the Canada Customs and Revenue Agency. The moratorium did not apply to taxes on other types of income such as rental income, investment income or business income, nor did it deem the lands set aside to be the same as reserves for all taxation purposes. A reserve, as defined in the Indian Act, is a tract of land whose title is vested in Her Majesty and that has been set aside by Her Majesty for the use and benefit of a band. Lands set aside are not reserves and therefore do not entitle Indians with property on such lands to obtain the exemptions from taxation which apply with respect to property on reserves. Accordingly, a status Indian working on land set aside would be subject to the assessment of income taxes on the related employment income and Indians living or working on lands set aside would have been subject to income tax during the period the moratorium was in force.

Following the decision of the Federal Court of Appeal and the subsequent denial of leave to appeal in the NIB case, the moratorium was, for the most part, rescinded. However, in a letter dated January 2, 1980, XXXXXXXXXX, former Minister Walter Baker informed XXXXXXXXXX that the moratorium on the collection of individual income tax arrears levied against certain registered Indians working in the Yukon would be extended until further notice. The letter of November 27 acknowledged that the moratorium was in respect of income earned by registered Yukon Indians while in the employ of recognized Indian organizations or while employed on lands recognized as "Indian lands."

The moratorium was in place until it was superseded by the Order Respecting the Remission of Income Tax in Relation to Certain Lands in the Yukon Territory P.C. 1995-197 (the Yukon Remission Order) issued February 7, 1995. The Remission Order provides for a remission of taxes that would not have been payable under the Act if the lands set aside were reserves for the period beginning after 1984 and ending on December 31, 1998, the expiration of the third calendar year after the calendar year in which the Yukon First Nations Self-Government Act came into force. The Yukon Remission Order applies to all sources of income and effectively provides Yukon Indians with the same exemptions they would have if the lands set aside were reserves within the meaning of the Indian Act. Thus, if an Indian had income that was connected to such lands, that income would be exempt.

The leading case concerning the taxation of business income earned by an Indian is Southwind (98 DTC 6084). Mr. Southwind was a status Indian who lived on a reserve and who earned income from logging. Mr. Southwind also claimed to have a business office on the reserve. In confirming the Tax Court's decision that Mr. Southwind's income was taxable, the Federal Court of Appeal used two main connecting factors, namely the location where the services were performed and the location of the sole customer.

You have expressed the view that Canada Customs and Revenue Agency has retroactively and unfavourably changed the terms of the moratorium following the introduction of the Yukon Remission Order. However, as explained above, the geographical areas to which the Yukon Remission Order applies is consistent with the geographical areas to which the moratorium applied. Both the moratorium and the Yukon Remission Order apply to lands set aside. In addition, the moratorium applies only to employment income, whereas the Yukon Remission Order provides an exemption from tax to all sources of qualifying income, beginning after 1984.

I appreciate the opportunity to address your concerns.

		Yours sincerely,

		Rob Wright

David Shugar
957-2134
February 21, 2000