27 October 2000 Internal T.I. 2000-0049497 - CUSTOMS OFFICE ON FORMER RESERVE LAND

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 ) Is the workplace located on a reserve

2 ) Is the employment income taxable.

Position: 1 ) No 2 ) Yes

Reasons:

1 ) Land was surrendered in XXXXXXXXXX

2 ) Employment income does not fall under the guidelines.

		October 27, 2000

	XXXXXXXXXX 	HEADQUARTERS
	Tax Services Office	Cornelis Rystenbil, CGA
(613) 957-2060
	Attention:  XXXXXXXXXX
		2000-004949

Customs office on former reserve lands

This is in response to your request of September 25, 2000. You have requested our comments on whether the employment income earned by status Indian customs officers (the "Officers"), working at the XXXXXXXXXX Customs Office, is taxable.

XXXXXXXXXX

Our Comments:

According to subsection 2(1) of the Indian Act, reserve means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band, and for purposes of section 87 of the Indian Act, includes designated lands. Designated lands is defined in subsection 2(1) of the Indian Act as a tract of land or any interest therein, the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests.

Subsection 2(1) of the Indian Act defines "surrendered lands" to mean "a reserve or part of a reserve or any interest therein, the legal title to which remains vested in Her Majesty, that has been released or surrendered by the band for whose use and benefit it was set apart." Nakakim v. Canada (Min. of Indian & Northern Affairs) confirmed that surrendered land is something different from a reserve and no longer forms part of a reserve. Documentation supports that the XXXXXXXXXX acres in question was surrendered and then sold in XXXXXXXXXX, accordingly, the land in question is not a reserve.

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 the 1992 case of Williams vs 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 Court stated that 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 the Williams case 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 a reserve. With a view to assisting the Indian community, the CCRA developed the Indian Act Exemption for Employment Income Guidelines, incorporating the various connecting factors that describe the employment situations covered by the Indian Act.

In order for employment income earned by a status Indian to be exempt, the income should fall within the above-mentioned guidelines. However, in our view, the employment income earned by the Officers does not fall within any of the guidelines and is taxable.

There is a possibility that the reason for the request is the court case of F. Marianne Folster V. The Queen, 97 DTC 5315. In the Folster case, the taxpayer was a status Indian employed by Health and Welfare Canada as an Administrator at the Norway House Hospital, situated in Northern Manitoba, and the taxpayer lived on the reserve. The hospital is located off the reserve but 80 per cent to 90 per cent of the patients are status Indians who resided on the Norway House Indian Reserve. At one time, the hospital was situated on the reserve; however, due to a fire in 1949, the Hospital was rebuilt adjacent to, but off the reserve. The Federal Court of Appeal determined that the income was exempt. After consideration of the connecting factors, the Court found that the performance of Ms. Folster's duties, being primarily for Indians on reserve, the actual historical circumstances involving the relocation off reserve and her residence, should be given more weight than the actual location of the hospital and employment duties. Given the circumstances, this was enough to exempt the income. The CCRA did not seek to appeal the judgment to the Supreme Court because it is the CCRA's opinion that the case was handled in a manner specific to its unusual facts and circumstances. In our view, this decision would only apply to individuals who are in identical circumstances to Ms. Folster and does not apply to this current situation.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 2 -