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:
Clarification requested regarding the connecting factors of Indian fishing business income and the determination of whether crew shares are employment or business income.
Position TAKEN:
General comments provided on the connecting factors, and the taxpayer was referred to the relevant TSO regarding the issue of whether crew shares are employment or business income.
Reasons FOR POSITION TAKEN:
Connecting factors based on relevant jurisprudence.
The CPP/EI Rulings Division of the relevant TSO is responsible for resolving employee/self-employed issues.
XXXXXXXXXX 2000-005628
M. Azzi
Attention: XXXXXXXXXX
November 29, 2000
Dear Sirs:
Re: XXXXXXXXXX ("Mr. X") and XXXXXXXXXX (the "Corporation")
This is in reply to your letter of November 15, 2000, which was further to our letter of October 19, 2000, regarding the above-noted subject and, in particular, the connecting factors of Indian fishing business income and the determination of whether crew shares are employment or business income.
As indicated in our letter of October 19, 2000, in our view, in the case of a fishing business, the location where the fishing is done is a factor of major importance in connecting the fishing business income to a location on or off reserve. While there may be some activities carried on in an office located on reserve, in our view, the actual revenue-generating activities would be more significant in determining whether the income from the fishing business is connected to a reserve. Thus, for example, if a bookkeeper were employed by a self-employed Indian fisher to maintain the books and records of the business in an on reserve office, but the actual revenue generating activities of the business were off reserve, the business income would be more connected to a location off reserve than it would to a location on reserve. In addition, in our view, the residence of the fisher and the location of the customers are not determining factors in connecting fishing business income to a reserve.
In situations where a portion of the revenue generating activities (such as preparation, dressing and packing of the fish for market) take place on reserve, a portion of the business income would generally be exempt. However, it is the view of the Canada Customs and Revenue Agency that the main activity of a fishing business is the fishing itself. Accordingly, the revenue generating activities involved in preparing the fish for market may exempt a small portion of the business income. It should also be noted that where a portion of income from a business is exempt and the remaining portion is not exempt, the expenses which pertain to the exempt portion are not deductible. 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 our view, the above positions are consistent with the approach adopted by the Supreme Court of Canada in Williams, 92 DTC 6320, and with the decision of the Federal Court of Appeal in Southwind, 98 DTC 6084. The Southwind case (the leading case on business income of an Indian) involved income earned from a logging business by a Status Indian who lived on reserve and said that he had an office on reserve. However, all his income earning activities were carried out off reserve and his sole customer was off reserve. In that case, the Court found the income from the logging business to be taxable.
As regards your concerns relating to crew shares, as indicated in our previous letter, we cannot determine from the information provided whether Mr. X would receive a crew share in his capacity as an employee of the Corporation, or as business income of a self-employed fisher. The determination of whether a crew share is employment income or business income is a question fact. In this respect, you may wish to seek the assistance of the CPP/EI Rulings Division of the relevant tax services office, as that division is responsible for resolving employee/self-employed issues.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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