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 business income earned by an Indian who provides XXXXXXXXXX services to XXXXXXXXXX Aboriginal individuals in XXXXXXXXXX facilities off-reserve is exempt.
Position: Factual case-by-case determination, dependent on the particular circumstances of each case. On the basis of the limited factual information provided, main income-earning activities off-reserve; weak links to the reserve; likely not exempt.
Reasons: Must weigh the connecting factors to determine whether business income is situated on a reserve. Application of connecting factors seems to point to a strong connection of the income to an off-reserve location.
XXXXXXXXXX
A. Messore
(613) 948-2227
2012-046604
March 28, 2013
Dear XXXXXXXXXX:
Re: Business Income of an Indian
This is in response to your interpretation request dated September 28, 2012 regarding the business income earned by your client, who is an Indian as that term is defined in subsection 2(1) of the Indian Act.
You have informed us that the taxpayer works as a XXXXXXXXXX, providing XXXXXXXXXX services to XXXXXXXXXX Indians in various XXXXXXXXXX facilities located off-reserve. The taxpayer has an office in his home, which prior to XXXXXXXXXX was located off-reserve. In XXXXXXXXXX he moved onto a reserve. The taxpayer is paid for his services by the various XXXXXXXXXX facilities. You would like to know whether the taxpayer's income would be exempt from tax because he is an Indian XXXXXXXXXX and because he is XXXXXXXXXX Indians who are necessarily off-reserve by reason of their XXXXXXXXXX.
The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5 "Advance Income Tax Rulings." This Information Circular and other Canada Revenue Agency publications can be accessed on our website at http://www.cra-arc.gc.ca. Although we cannot comment on your specific situation, we are able to provide the following general comments, which may be of some assistance.
Paragraph 81(1)(a) of the Income Tax Act together with paragraph 87(1)(b) of the Indian Act exempt from tax the personal property of an Indian situated on a reserve. The courts have determined that for the purpose of section 87 of the Indian Act, income, including self-employment income, is personal property. Determining whether income is situated on a reserve, and thus exempt from tax, requires the evaluation of factors connecting the income to a location on or off a reserve.
You have noted that when determining the location of business income, the location of the revenue-generating activities is the most significant connecting factor. In addition, the courts have also taken into consideration such secondary connecting factors as: the location of the customers, the location where business decisions are made, the type of business and nature of the work, the place where payment is made, the location of the books and records and, to a lesser extent, the residence of the owner of the business.
In the situation you have described, it seems that the core business activities of the sole-proprietorship consist of the XXXXXXXXXX services, which are all being provided to customers (the XXXXXXXXXX) at the XXXXXXXXXX facilities located off-reserve. Consequently, based on the information provided to us, the income would likely not be considered sufficiently connected to a reserve to be exempt from tax. In our view, the fact that the taxpayer is giving XXXXXXXXXX to Indians who are necessarily located off-reserve does not connect the income derived from these activities to a reserve.
In XXXXXXXXXX, the taxpayer relocated his home office to premises on a reserve. However, from the limited facts available, it does not appear that the taxpayer is carrying out any essential or significant components of the business operations in his home office on reserve. Furthermore, the residence of the business owner is a relatively weak connecting factor when determining the location of business income. In our view, the connecting factors overall tend towards situating the business income off-reserve, and the income would therefore be considered taxable.
We trust these comments will be of assistance.
Yours truly,
P. Burnley, CA
A/Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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