13 April 2000 Income Tax Severed Letter 2000-0018446 - PENSION BENEFITS - STATUS INDIANS

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: a) Is pension income received by a status Indian taxable?. B) Does time spent traveling through a reserve on railway rights of way, count towards time spent performing duties of employment on reserve?

Position:

a) Taxation of pensions income received by status Indians depends on the tax treatment of the related employment income.

b) Generally no.

Reasons:

a) The Williams decision requires that income which is ancillary to employment income, such as pension income, including Canada Pension Plan benefits, be treated the same as the employment income itself. In other words, if the employment income was exempt under the Indian Act, so too would be the pension income.

b) Depending on the facts, it is likely that the duties that might be performed on reserve are merely occasional and not a meaningful connecting factor. Basically, when time spent on a reserve is minimal it is considered incidental and does not qualify for exemption.

		April 13, 2000

	Client Services Directorate	HEADQUARTERS
	Assessment & Collections Branch	Karen Power, CA
	25 McArthur Road, 1st Floor	(613) 957-8953
	Vanier, Ontario

	Attention:  Betty-Ann Ward
		2000-001844

XXXXXXXXXX - Taxation of Pension Benefits

In response to your request of April 3,2000, we are providing you with the following insert to be included in your reply to a query raised by the above-noted taxpayer regarding the taxation of pension benefits.

Paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act provide the principal Indian exemption from taxation, which means that personal property including income of an Indian situated on a reserve is exempt from taxation. In Mitchell V. Peguis Indian Band, the Supreme Court of Canada described the purpose of the Indian Act as to preserve the entitlements of Indians to their reserve lands and to prevent their erosion through taxation, but not to confer a general economic benefit upon Indians. In this respect, La Forest, stated that:

"...one must guard against ascribing an overly broad purpose to ss.87 and 89 [of the Indian Act]. These provisions are not intended to confer privileges on Indians in respect of any property they may acquire and possess, wherever situated. Rather, their purpose is simply to insulate the property interests of Indians in their reserve lands from the intrusions and interference of the larger society so as to ensure that Indians are not dispossessed of their entitlements."

In determining whether the income earned by an Indian is situated on a reserve and thus exempt from taxation, the approach taken by the Supreme Court of Canada, in Williams V. The Queen, must be followed. This approach requires that all factors connecting income to a reserve be examined to determine if the income is located on the reserve. In the Canada Customs and Revenue Agency's ("CCRA") view, this approach leads to the conclusion that residency on a reserve, as a sole factor, is not sufficient to connect an individual's income to it. In Williams, the Supreme Court ruled that the proper approach to determining the situs of intangible personal property is to evaluate the various connecting factors which tie the property to one location or another. The Court also indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian to personal property situated on a reserve.

In CCRA's view, the Williams decision requires that income which is ancillary to employment income, such as pension income, including Canada Pension Plan benefits, be treated the same as the employment income itself. In other words, if the employment income was exempt under the Indian Act, so too would be the pension income. This position is also reflected in the Indian Act Exemption for Employment Income Guidelines. We have attached a copy of the Guidelines for your files.

Your letter makes reference to a recent court case involving the Cook's Ferry Indian Band, in which you understood that railway rights of way are considered to be an Indian Reserve. The court case to which you refer, is Matsqui vs. Canadian Pacific (99 DTC 5564) which was heard at the Federal Court of Appeal on June 25, 1999. The judgment in this appeal, rendered by Mr. Justice Marceau was that the lands in Canadian Pacific's right of way traversing the reserves were not lands in respect of which the Bands would have a right of taxation. However, two of the three judges hearing this case, found that the lands comprising the rights of way were "in the reserve" within the meaning of section 83 of the Indian Act. Application for leave to appeal this decision with the Supreme Court of Canada may be filed on or before April 30, 2000.

In order to fall within the employment guidelines, an employee must be required by an employer to perform their duties on a reserve. It is unlikely that the CCRA would consider time spent traveling through a reserve on railway rights of way as time spent performing duties of employment on reserve, as depending on the facts, the duties that might be performed on reserve are likely to be merely occasional and not a meaningful connecting factor. The closer the amount of time spent on reserve is to nil, the greater the likelihood that the time spent on reserve is incidental and taxable. The closer the amount of time spent on reserve is to 10% of total duties, the greater the likelihood that the time spent on reserve is exempt from tax. Basically, when time spent on the reserve is minimal it is considered incidental and does not qualify for exemption.

The determination of whether employment duties are performed on a reserve is a question of fact which can only be resolved by an examination of all the facts by your Taxation Services Office. We therefore suggest that you contact Mr. Robert Ricketts, Assistant Director of Revenue Collections Division, Southern Interior British Columbia Taxation Services Office, by telephoning (250) 492-9208 or writing to 277 Winnipeg Street, Penticton, British Columbia, V2A 1N6.

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