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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Will amounts paid to a status Indian for medical services provided on a reserve be exempt from taxes?
Position: Yes.
Reasons: The services are provided on a reserve.
September 5, 2002
WINNIPEG TAX CENTRE HEADQUARTERS
Aboriginal Affairs and
Attn: Brent Davies Non-Profit Section
Enquiries & Adjustment Division (613) 957-8953
2002-015625
Status Indian - Medical Care Services
This is in reply to your memorandum of August 8, 2002, wherein you requested our views as to whether the amounts paid by a status Indian to his mother for medical services would be exempt from income taxes under paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act.
The status Indian received a severe head injury in XXXXXXXXXX (the "Injured Taxpayer"). Under a court order, a trust was established to provide an income source for the Injured Taxpayer. The court order also appointed the Injured Taxpayer's mother as his sole Committee and she was to be paid an ongoing compensation for the medical services she has to provide in attending the personal needs of the Injured Taxpayer. The Injured Taxpayer and his mother reside on a reserve and all of the mother's medical services are provided on the reserve.
The Injured Taxpayer has reported the investment income earned by the trust as taxable income and has claimed a deduction for the medical expenses paid to his mother. The Injured Taxpayer's mother has filed a Statement of Business Activities with her T1 claiming that her business income is exempt from income taxes under paragraph 81(1)(a) of the Act and section 87 of the Indian Act. You have accepted the medical expenses in assessing the Injured Taxpayer's T1 but you would like our views regarding the taxation of the mother's medical care services business income.
Paragraph 81(1)(a) of the Act provides that an amount declared exempt from income tax by another act of Parliament shall not be included in computing the income of a taxpayer. Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve. The Courts have concluded that the term "personal property" includes income.
In determining whether income (personal property) is situated on a reserve, the approach taken by the Supreme Court of Canada in the case of Williams (92 DTC 6320) must be followed. The proper approach in determining the situs of personal property is to evaluate the connecting factors that tie the property to one location or another.
We note that Henry Southwind (98 DTC 6084) is the leading case dealing with the taxation of business income of an Indian. Based on the Southwind case, you would look at the location of the revenue generating business activities and the location of the customers as being significant factors that serve to connect the business income to a location that is either on or off reserve.
Because the revenue generating business activities are located on a reserve and the only customer resides on a reserve, all of the significant connecting factors situate the mother's medical care services business income on a reserve. Consequently, the mother's income tax returns appear to have been filed correctly. Even though the Injured Taxpayer uses taxable investment income to pay for the medical care services and the mother is related to her business customer, we would still conclude that the medical care services business income is situated on a reserve for the purposes of applying the Act and the Indian Act.
For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. 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 electronic library version, or they may request a severed copy 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 (819) 994-2898. A copy will be sent to you for delivery to the client.
Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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