29 October 2002 External T.I. 2002-0162455 - REMOTE ADJACENT BUSINESS INDIAN EMPLOYEE

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:

Can we state that all status Indian employees of stores located on lands that are adjacent to remote reserves would be exempt from income taxes?

Position: No.

Reasons:

This determination is always a question of fact requiring a review of the facts in each particular case.

XXXXXXXXXX 2002-016245

October 29, 2002

Dear XXXXXXXXXX:

Re: Indian Act Exemption and Remote Businesses Adjacent to Reserves

This is in response to your letter of September 11, 2002, wherein you asked several questions regarding the taxation of employment income earned by status Indians employed by your client. In your letter, you refer to the various positions expressed in our memorandum (file #2001-009517) to the XXXXXXXXXX Tax Services Office in respect of your client.

Question #1

Why are we unable to take a position that income earned by all status Indian employees of businesses located on remote Northern privately owned land that is adjacent to Indian reserves is exempt from income taxes under paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act?

Position

The determination of whether the connecting factors in any particular situation would tie employment income to one location on reserve or another location off reserve is a question of fact. Consequently, as explained in the above referenced memorandum, this determination can only be made on a case by case basis by the relevant Tax Services office.

Question #2

Where it is determined that a status Indian's employment income is considered exempt and the status Indian has filed as though the employment income is taxable, will the Canada Customs and Revenue Agency re-open the previous taxation years in respect of the individual?

Position

If it is ultimately determined that a status Indian's employment income is connected to a reserve and the employment income is exempt from income taxes under paragraph 81(1)(a) of the Act and section 87 of the Indian Act, the relevant Tax Services Office will determine which taxation years are eligible for the tax exemption. Consequently, this question should be addressed to the appropriate Tax Services Office for its consideration.

Question #3

Where a status Indian resides on a reserve and earns all of his or her employment income on the reserve, you ask whether Guideline 1 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") would apply?

Position

As indicated in Guideline 1, when at least 90% of the duties of employment are performed on a reserve, all of the income of a status Indian from that employment will usually be exempt from income taxes.

You indicated in your letter that all of the status Indian's employment income was earned on the reserve. As a result, in our view, Guideline 1 could apply; however, the determination of whether the Guidelines would apply in any particular situation is a question of fact. The Guidelines are intended to provide general guidance in the determination of whether specific employment income is eligible for the exemption from income taxes under paragraph 81(1)(a) of the Act and section 87 of the Indian Act. The determination of whether a specific individual qualifies for the exemption from income taxes should be addressed to the appropriate Tax Services Office for its consideration of the application of Guideline 1. As noted in paragraph 22 of Information Circular 70-6R5, we are not responsible for providing technical interpretations in respect of completed transactions.

We trust that the above comments will be of assistance to you.

Yours truly,

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate