25 May 2004 Ministerial Correspondence 2004-0068451M4 - Fishing income earned by status Indian

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.

Principal Issues: Whether a status Indian's income from commercial fishing is exempt from income tax.

Position: Question of fact.

Reasons: The fishing income will be exempt only if the waters in which the fishing occurs is on reserve, by virtue of the exemption in the Indian Act for "the personal property of an Indian or bank situated on a reserve".

Signed on May 25, 2004

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Stan Keyes, Minister of National Revenue, has asked me to reply to your letter addressed to the Honourable Robert Nault, former Minister of Indian Affairs and Northern Development (INAC), concerning the taxation of aboriginal fishers. The Honourable Andy Mitchell, Minister of INAC, forwarded a copy of your letter to Minister Keyes on March 10, 2004. I apologize for this delayed response.

As Mr. Mitchell indicated in his response to you, the Minister of National Revenue is responsible for administering taxation. Operating under the authority of the Minister of National Revenue, the Canada Revenue Agency (CRA) strives to promote taxpayer compliance with the income tax laws and endeavours to apply the tax laws fairly and uniformly to all taxpayers. Developing income tax laws and tax policy issues are the responsibility of the Department of Finance.

Mr. Mickey Sarazin, a director in the Income Tax Rulings Directorate, XXXXXXXXXX to explain the CRA's role in administering income tax laws and to outline how these laws apply to the fishing income earned by status Indians. I wish to emphasize that, as Mr. Sarazin indicated, the CRA is committed to a partnership with First Nations organizations to deal with income tax issues and, in this spirit, has established the First Nations Advisory Committee.

The authority for the tax exemption enjoyed by status Indians on certain income is derived from paragraph 87(1)(b) of the Indian Act, which exempts from taxation the personal property of an Indian or a band situated on a reserve. The Supreme Court of Canada in the case Williams v. the Queen concluded that the determination of whether income is situated on a reserve and thus exempt from tax requires the evaluation of the various connecting factors that tie the property to one location or another. In the case of business income, the Federal Court of Appeal in the case Southwind v. the Queen concluded that the most significant factors that serve to connect business income to a location on a reserve or off reserve are:

? the location where the revenue generating activities are carried out; and

? the location of the business customers.

Although certain activities, such as the maintenance of books and records, may be carried out on a reserve, it is the CRA's position that the principal activity in such enterprises is the fishing that takes place on the waters. Accordingly, income from commercial fishing will generally not be exempt from taxation unless the waters are part of a reserve. Whether waters are part of a reserve, a defined term in the Act, is a question of fact that must be determined on a case-by-case basis, and, generally, in consultation with INAC officials. If particular waters are determined to be off reserve, any income derived by commercial fishers on these waters is therefore generally taxable.

I appreciate the opportunity to address your concerns.

                                          Yours sincerely,

                                          Stephen Rigby
                                          Assistant Commissioner
                                          Policy and Planning Branch

James Gibbons
957-2135
2004-006845
April 7, 2004