1 December 2009 External T.I. 2009-0344911E5 - Indian Employment Income - Travel Time

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: Tax Exemption: 1. Is the time spent travelling from employer office to an on-reserve location relevant? 2. Is the time spent travelling from an on-reserve residence to a job site on the same reserve relevant? 3. Is the travel time from an on-reserve residence to a job site on another reserve relevant?

Position: 1. No. 2. Maybe 3. No

Reasons: 1. Travel time is not (or only incidentally) on a reserve. 2. Depends on whether a duty of employment and whether the employee is compensated by the employer for this time. 3. Same as 1.

		2009-034491
XXXXXXXXXX 		Lori Merrigan
(613) 957-8979
December 1, 2009

Dear XXXXXXXXXX :

Re: Travel Time To and From Indian Reserve

This is in response to your correspondence of October 20, 2009, inquiring whether employment income earned by an Indian, as that term is defined in subsection 2(1) of the Indian Act, while travelling to and from Indian reserves, is exempt income for purposes of paragraph 81(1)(a) of the Income Tax Act (the "Act"). In particular you have asked the following questions:

1. Is travel time from an employer's office (not on a reserve), to a job site on a reserve, relevant in determining what income is exempt?

2. Is the travel time from an employee's residence on a reserve directly to a job site on that same reserve relevant in determining what income is exempt?

3. Is travel time from an employee's residence on a reserve to a job site on another reserve relevant in determining what income is exempt?

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the

appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

General

Paragraph 81(1)(a) of the Act, together with paragraph 87(1)(b) of the Indian Act, exempt from tax certain income of Indians. Paragraph 87(1)(b) of the Indian Act states that "the personal property of an Indian or a band situated on a reserve" is exempt from taxation. The courts have determined that income from employment is personal property for purposes of section 87 of the Indian Act. The Supreme Court of Canada, in Williams v. The Queen, 92 D.T.C. 6320, concluded that the determination of whether income is situated on a reserve, and thus exempt from tax, requires identifying the various factors connecting the income to a reserve and weighing the significance of each such factor.

To simplify the application of this "connecting factors test" with respect to common employment situations, the CRA, together with interested Indian organizations, developed the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"). Based on the nature of your questions, the Guidelines that may apply in your situation may be summarized as follows:

• Guideline 1 exempts all of the employment income of an Indian employee if at least 90% of the employment duties are performed on a reserve. When less than 90%, but more than an incidental proportion, of the duties are performed on a reserve, and none of the other Guidelines apply, only the portion of income that is earned from duties performed on a reserve is exempt from tax.
• Guideline 3 exempts all of the employment income of an Indian employee if more than 50% of the employment duties are performed on a reserve and either the employer is resident on a reserve or the Indian lives on a reserve.

Discussion

To determine whether employment income is exempt from tax under the Guidelines referred to above, the portion of employment duties performed on a reserve must be determined. In considering what time is relevant for the purpose of this determination, we generally take into account:

• whether an actual "duty of employment" was performed (i.e., was the employee required to perform the particular task and was the employee compensated by the employer for performing that particular task); and
• whether the duty of employment was actually performed on a reserve.

In each of your questions, the travel time would generally be considered to relate to an employee's duties of employment. However, in order for that time to be relevant in determining the application of a tax exemption in accordance with paragraph 81(1)(a) of the Act and paragraph 87(1)(b) of the Indian Act, the time must actually be spent on a reserve. Therefore, we would only take into account travel time from the employer's office off-reserve to a job site on a reserve, or travel time between reserves, to the extent that some of that time was actually on a reserve and was not merely incidental. Travel time either directly between two job sites, or between an employee's residence and a job site, within the same reserve, would generally be taken into account for purposes of the exemption if the employee was compensated for that travel time as part of his or her duties of employment.

We trust that these comments will be of assistance.

Yours truly,

Eliza Erskine
A/Manager
Non-Profit Organizations and Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch