13 June 2000 External T.I. 2000-0020095 - INDIAN EMPLOYMENT 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.

Principal Issues: Whether portion of status Indian's employment income is tax

exempt.

Position: Yes

Reasons: Proration rule to Guideline 1 applies - less than 90% of employment

duties performed on a reserve and none of the other guidelines apply .

		2000-002009
XXXXXXXXXX 	M. Shea-DesRosiers
(613) 957-8953
June 13, 2000

Dear XXXXXXXXXX:

Re: Whether Employment Income is Tax Exempt

This is in reply to your facsimile of April 12, 2000, requesting our opinion as to whether a portion of your employment income is tax exempt. Attached was a TD-IN form "Determination of Exemption of an Indian's Employment Income" completed by you.

You describe your situation as follows:

1. You are a status Indian, registered # XXXXXXXXXX, who lives in XXXXXXXXXX.

You are building a permanent residence on XXXXXXXXXX Reserve XXXXXXXXXX.

2. XXXXXXXXXX.

3. You currently commute 4 days a week (350 kms) from interim residence in XXXXXXXXXX.

4. You also currently commute 1 day a week (100 kms) from interim residence in XXXXXXXXXX.

5. You will continue to commute until the permanent residence on XXXXXXXXXX.

Reserve XXXXXXXXXX is complete.

6. Your employer is XXXXXXXXXX.

You have requested that we forward a copy of our reply to your employer representative, XXXXXXXXXX.

Our comments

Written confirmation of the consequences inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Canada Customs and Revenue Agency ("CCRA").

Paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act provide a tax exemption for an Indian's personal property situated on a 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 v. The Queen (92 DTC 6320), the Supreme Court of Canada reconsidered the approach to use in determining whether income is situated on a 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 in Williams v. The Queen and after receiving representations from interested groups and individuals, CCRA identified a number of connecting factors that can be used to determine whether employment income is situated on a reserve. With a view to assisting the Indian community, 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. We have enclosed a copy of the 1994 Guidelines for your information.

Guideline 1 will apply to exempt all of the income of an Indian if at least 90% of the employment duties are performed on a reserve regardless of where the employer is resident. 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 (the proration rule).

You have indicated that you spend four of your five working days performing employment duties on a reserve. The portion of employment duties actually performed on a reserve is a question of fact. However, based on the information provided, we agree with you that the proration rule to Guideline 1 would apply to exempt from tax the portion of your employment duties performed on a reserve which you state as being 80%. In calculating the time spent performing employment duties on a reserve, it should be noted that travel time to and from the reserve is not included.

As for the other Guidelines, Guidelines 2 and 3 would not currently apply to exempt all your employment income since neither you nor your employer is resident on a reserve. Guideline 4 would also not apply since not only is your employer not resident on a reserve, but the other requirements of the Guideline are not met.

Once you move to your permanent residence on a reserve, you may be exempt on all your employment income under Guideline 3 if you continue to perform at least 50% of your employment duties on a reserve.

We trust the above 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

Encl.

- 3 -