13 February 2012 Internal T.I. 2011-0425091I7 - Indian Employment Income - Guideline 4

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 Guideline 4 will apply to exempt employment income of certain Indian employees.

Position: Likely no.

Reasons: Fact specific.

February 13, 2012

	XXXXXXXXXX 							HEADQUARTERS
	XXXXXXXXXX  Tax Centre					Income Tax Rulings
	XXXXXXXXXX 							  Directorate

									Lori Merrigan
									(613) 957-8979
	Attention: XXXXXXXXXX
									2011-042509
				

Employment Income of an Indian - Guideline 4

This is in response to your memo of October 19, 2011, asking for our comments with respect to the taxation of the employment income earned by certain individuals who are Indians, as that term is defined in section 2 of the Indian Act, who are employees of XXXXXXXXXX (the "Organization"). Specifically, you have been asked whether Guideline 4 of the Indian Act Exemption for Employment Guidelines (the "Guidelines") would be applicable to exempt the employment income earned by these employees for the XXXXXXXXXX taxation year.

FACTS

These are the facts as we understand them:

• The Organization is operated by XXXXXXXXXX It is not clear to us whether the Organization or XXXXXXXXXX is the employer.
• The documentation you forwarded to us from XXXXXXXXXX states that in XXXXXXXXXX the central office of the employer was located on a reserve. However, we note that the Organization was not located on a reserve during XXXXXXXXXX .
• The Indian employees were working off-reserve at the Organization during the XXXXXXXXXX taxation year.
• We do not know whether any of these Indian employees resided on a reserve during the XXXXXXXXXX taxation year.
• XXXXXXXXXX

ANALYSIS

Guideline 4 allows an exemption for the employment income of an Indian where certain conditions are met. Specifically, Guideline 4 requires that:

a) the employer is resident on a reserve;

b) the employer is:

• an Indian band which has a reserve, or a tribal council representing one or more Indian bands which have reserves; or
• an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves; and

c) the duties of employment are in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indian's who for the most part live on reserves.

All of these conditions must be met for Guideline 4 to apply.

The documentation you sent to us from XXXXXXXXXX stated that the central office of the employer was resident on a reserve; however, we were given no facts to support this assertion. In XXXXXXXXXX , the Organization was not located on reserve land. Furthermore, it seems unlikely that the central management and control of an organization of this type (XXXXXXXXXX ) would be situated other than at the building of the organization. As such, it would appear that requirement (a) above has not been met.

According to the information provided, the Organization may be an Indian organization controlled by one or more bands which have reserves or tribal councils representing one or more Indian bands which have reserves. However, it would not appear that the activities of the Organization are dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves. In our view, engaging in profitable, commercial activities for the purpose of funding the social, cultural, educational, or economic development of Indians does not constitute being exclusively dedicated to that development. Therefore, it would appear that the requirement in (b) above has also not been met.

Finally, the employee's duties of employment must be in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. Given the nature of the employer, it is questionable whether the duties of
employment of the employees are in connection with the non-commercial activities of the employer. It also seems unlikely that the duties of employment of the employees working for the Organization are in connection with activities carried on exclusively for the benefit of Indians who for the most part live on a reserve.

It appears that the employment income of Indian employees working for the Organization at its XXXXXXXXXX off-reserve location was not exempt from tax XXXXXXXXXX However, we were provided with insufficient facts with which to assist you in making a final determination. XXXXXXXXXX

We trust that our comments will be of assistance.

Yours truly,

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