4 April 2001 Internal T.I. 2001-0071867 - TAX OF INCOME EARNED BY STATUS INDIAN-PILOT

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: Taxation of employment income of status Indian who is a pilot.

Position: Possibly partially exempt as per guideline 1. Guideline 3 may exempt his income if the employer is resident on a reserve and the percentage of work performed on a reserve by the employee is greater than 50%. We would note, however, that, as a pilot, we expect that most of the employment duties would be performed off reserve.

Reasons: As per the Guidelines

							April 4, 2001

	XXXXXXXXXX 					HEADQUARTERS
	XXXXXXXXXX  Tax Services Office	Cornelis Rystenbil, CGA
(613) 941-6547

							2001-007186

Taxation of Income Earned by Status Indian

This is in reply to your request of August 21, 2000, in which you ask for our views on whether the employment income of XXXXXXXXXX is exempt from taxation.

You have provided us with the following facts:

1. XXXXXXXXXX is a status Indian;

2. He does not live on a reserve;

3. During the years under audit (XXXXXXXXXX), he was employed as a pilot with XXXXXXXXXX. According to his employer, he mainly flies between reserves; however, he starts off in XXXXXXXXXX which is not a reserve; and,

4. XXXXXXXXXX moved its offices on a reserve as of XXXXXXXXXX. You have not yet determined whether the employer was resident on reserve for the years at issue.

Our Comments:

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 determined that employment income is personal property. Therefore, what must be determined is whether the employment income is situated on a reserve. The Supreme Court of Canada in Williams (92 DTC 6320) has directed that all factors connecting income to a reserve must be examined to determine if the income is located on the reserve.

Based on the guidance provided in Williams and after receiving representations from interested Indian groups and individuals, the 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 Department 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 not been provided with the percentage of employment duties that are performed on a reserve in order to establish which Guideline may apply. This determination must be made on the basis that, in our view, time spent traveling to and from a reserve would not be considered time spent on reserve. Furthermore, in our view, standby time (i.e., time during which an employee was required to be available for work, but was not requested to work) is not considered to be related to a specific location on or off reserve and should therefore not be taken into consideration in establishing the percentage of employment duties performed on or off reserve. Similarly, vacation leave, sick leave and statutory holidays should not be taken into consideration in establishing the percentage of employment duties performed on or off reserve, regardless of whether the leave or holidays were taken on or off reserve.

The term "employer is resident on a reserve", as used in the Guidelines, means that the reserve is the place where the central management and control over the employer organization is actually located. The central management and control of an organization is usually considered to be exercised by the group that performs the function of a board of directors of the organization. However, it may be that the real management and control of an organization is exercised by some other person or group. Generally, management and control is exercised at the principal place of business, but it is recognized that this function may be legitimately exercised in a place other than the principal administrative office of the organization. Nonetheless, it should be noted that satisfaction of the requirement that the employer be resident on a reserve is always of some concern where the head office of an organization is located on a reserve but its main place of business is located off reserve. Where an organization, which would otherwise not be considered to be resident on reserve, is asserting that it satisfies the definition because it holds its board of directors meetings on reserve, it should generally be considered to satisfy the definition where management and control over the organization is legitimately exercised during those meetings. A review of all of the facts surrounding a situation including the minutes of the board of directors meetings and resolutions or by-laws passed thereat would be required to conclusively resolve this question of fact.

In our view, for the XXXXXXXXXX taxation years, XXXXXXXXXX employment income may be partially exempt as per the proration rule to Guideline 1 of the Guidelines. Since XXXXXXXXXX does not live on a reserve and his employer is engaged in commercial activities, Guidelines 2 and 4 would not exempt his employment income. Subject to a determination of whether XXXXXXXXXX. is resident on a reserve and subject to XXXXXXXXXX percentage of employment duties performed on reserve being more than 50%, Guideline 3 of the Guidelines may apply to exempt XXXXXXXXXX employment income. We would note, however, that, as a pilot, we would expect that most of the employment duties would be performed off reserve.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate