25 April 2000 Ministerial Correspondence 2000-0015044 - TAXATION OF INDIAN FISHING 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.

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.

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your letter of February 29, 2000, concerning the place at which the majority of commercial fishery work is done.

In your letter, you explained that compared to ocean-based commercial fisheries where most work is done on the water, the activities of inland commercial fisheries takes place on the water and on land. In addition, you stated that the amount of time inland commercial fisheries spend in the actual act of fishing and the time spent in activities on land varies depending on how far the fishers must travel to set their nets. You are concerned that the Canada Customs and Revenue Agency (CCRA) has not considered the amount of time an inland fishery spends engaged in fishing activities on land as a factor connecting the fishing income to a reserve.

In my letter of February 4, 2000, I explained that the CCRA's view is that the main activity of a fishing business is the fishing itself, and revenue-generating activities involved in preparing the fish for market may exempt a small portion of the business income. Our view is based on the approach taken by the Supreme Court of Canada in the case of Glenn Williams V. Her Majesty the Queen, which requires an examination of the various connecting factors which tie the income to one location or another. The Court recommended the following approach:

a) analyze the matter in terms of categories of property and types of taxation;

b) identify the various connecting factors (i.e., factors connecting the property to a location on or off reserve); and

c) determine the weight to be given to the connecting factors in light of three considerations:

(i) the purpose of the exemption under the Indian Act (which is to ensure that the property of an Indian on reserve would not be eroded through taxation by government - its purpose is not to confer a general economic benefit on Indians),

(ii) the type of property in question (income), and

(iii) the nature of taxation of the property (tax on income).

Based on the Federal Court of Appeal case of Henry Southwind V. The Queen, for a business, considerable emphasis should be placed on the location where the business activity is carried on.

For a fishing business, the principal activity of the fishing business is the activity of making the catch. While there may be some activities carried on the reserve, the location of the actual revenue-generating activities, that is, the location of the fishing grounds, is a connecting factor of major importance in determining whether business income is connected to a reserve, and outweighs any other factor. Activities occurring on land that enable fishers to make the catch are connecting factors to which only limited weight is given. Loading, unloading, and transporting the catch, repairing, dismantling, or laying-up the fishing vessel or fishing gear, are not the principal revenue-generating activities of a fishing business even though they may take up considerable time. Although time spent on a reserve is usually a connecting factor that is given significant weight in determining whether income from employment is exempt, we do not consider it to be a meaningful factor when determining whether income from a fishing business is located on a reserve. In addition, the time spent travelling to and from the fishing grounds should not be given significant weight when determining whether fishing income is connected to a reserve.

However, where some revenue-generating activities take place on the reserve, such as preparing the fish for market (for example, filleting, shelling, icing, canning, freezing, smoking, salting, cooking and pickling), a portion of the business income may be exempt depending on the extent and complexity of the processing done. In those situations, an allocation of income between the fishing activity and the fish processing activity would be determined on a case-by-case basis and should be reasonable in the circumstances.

Normally, expenses should be allocated in the same proportion as revenue unless another allocation could be shown to be more reasonable in the circumstances. In a specific situation, some expenses may pertain entirely to the exempt portion or to the taxable portion, and in that case, a specific allocation of the entire expense to its respective portion would be appropriate.

In some circumstances there may be two businesses carried on, the fishing business and the processing business. Whether the carrying on of two or more simultaneous business operations is the same business is dependent upon the degree of interconnection, interlacing or interdependence, and the extent of the unity embracing the business operations. I have included a copy of Interpretation Bulletin IT-206R, Separate Businesses, for your information.

I trust that my comments explains the CCRA's position on this matter.

Yours sincerely,

Martin Cauchon

Attachment
- 3 -