13 July 2005 Internal T.I. 2005-0134551I7 - Indian fishing income from lakes

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: Will a status Indian fisher be taxable on fishing income earned by fishing on lakes "closely connected" with his reserve or lakes that are within a resource management area?

Position: Question of fact

Reasons: The principles of the Southwind case apply, meaning that the most significant connecting factors are the location of the income generating activities and the location of the customers. Whether the lake is part of a reserve is a question of fact that would require confirmation from INAC. The fact that fish may be caught within XXXXXXXXXX in and of itself doesn't create a connection to a reserve. XXXXXXXXXX . This is also a question of fact requiring INAC's confirmation.

 			July 13, 2005

	WINNIPEG TAXATION CENTRE		HEADQUARTERS
				Income Tax Rulings
	Attention:  Les Zilkie			  Directorate
				Renée Shields
(613) 948-5273

				2005-013455

Taxation of fishing income

This is in response to your electronic correspondence of June 3, 2005 regarding the taxation of fishing income earned by status Indian fishers from the XXXXXXXXXX. You have indicated that some such fishers are claiming a 100% tax exemption on fishing income on the following grounds:

? The seasonal fish harvest activities are conducted on bodies of water (lakes) closely connected with the XXXXXXXXXX, and

? The lakes are located within the boundaries of the XXXXXXXXXX

In determining whether business income earned by a status Indian is taxable, we are guided by the Federal Court of Appeal decision in Southwind v. the Queen. The court 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 a self-employed fisher may carry out certain activities on a reserve, such as the maintenance of books and records, 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 Indian 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.

Although you have not been able to specifically identify for us what lakes are involved, the assertion by the fishers that the lakes in which they fish are "closely connected" to their reserve falls short of confirmation that business income was earned on a reserve. Similarly, if the fishers' position is that income earned by fishing on a lake located in the XXXXXXXXXX, but not necessarily on a reserve, should be exempt from tax, then we would disagree. This view ignores the requirement of a reserve situs of income. XXXXXXXXXX.

XXXXXXXXXX. Therefore, with respect to your inquiry, the specific lake on which a particular individual earned business income from fishing would have to be identified, and confirmation obtained from INAC as to whether that lake is considered to be part of a reserve, whether pursuant to the XXXXXXXXXX or otherwise.

We trust that these comments will be of assistance.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada 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. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Roxane Brazeau-LeBlond, C.A.

for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch