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 the business income of Indian fishers qualifies for the Indian Act exemption pursuant to section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act.
Reasons: See discussion in letter.
November 27, 2013
Re: Tax Treatment of Business Income Indian Fishers
This is in response to your email of December 20, 2012, with respect to the tax treatment of the business income of Indian fishers pursuant to paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act (the "IA"). In particular, you have asked whether recent court decisions have resulted in a change to the CRA's interpretation of the law.
The personal property of an Indian, as that term is defined in subsection 2(1) of the IA, is exempt from tax pursuant to paragraph 81(1)(a) of the Act and section 87 of the IA if that property is situated on a reserve. Although income is personal property, its intangible nature makes it difficult to determine its location.
In determining whether commercial fishing business income is connected to a reserve, factors that may connect the business income to a reserve are (i) the location of the fishing activities catching, preparing and transporting the fish and, (ii) the location of the fisher's selling activities - including the location of the fisher's customers and the location of the sale of the fish. An Indian's income from a commercial fishing business is generally exempt from tax if the actual fishing activities of his or her business take place within a reserve. If the fishing activities take place mainly off-reserve and the customers are located off-reserve, the fishing income may not qualify for the exemption under section 87 of the IA. However, other connecting factors, described below, may apply to exempt your fishing income from tax.
On March 20, 2012, the Federal Court of Appeal (FCA) released its decisions in the cases of Ron Ballantyne v. Her Majesty the Queen and Her Majesty the Queen v. Ronald Robertson and Roger Saunders (leave to appeal to the Supreme Court of Canada denied October 25, 2012). In both cases, the FCA found that the fishing income earned by the taxpayers was situated on a reserve and exempt from tax.
The CRA will apply these decisions in similar situations, where the connections between the reserve and the fishing income are bona fide and there is no artificial manipulation of the connecting factors, to exempt all of the fishing income from tax for the 2012 and following tax years.
A similar situation means that all of the following conditions are met:
- The fishing activities of the fisher in waters near or abutting the reserve have a significant historical and continuing important economic connection to the reserve; and
- The fisher is a member of a band-owned and -operated organization or cooperative of band members located on the reserve that has a predominant role in the fisher's fishing and selling activities and an important role in the general economic life of the reserve.
Where these conditions are not met and the fishing and selling activities of the Indian fisher take place off-reserve the business income will likely be taxable. Where the fishing and selling activities of the Indian fisher take place both on- and off-reserve, the tax exemption provided for under section 87 of the IA may be prorated. Some revenue-generating activities from commercial fishing may include preparing the fish for market (e.g., filleting, shelling, icing, canning, freezing, smoking, salting, cooking, and pickling). If this type of processing takes place on a reserve, part of the business income may be exempt, depending on the extent and complexity of the processing done. The allocation of income between off-reserve fishing activities and on-reserve fish-processing activities is determined on a case-by-case basis and should be reasonable in the circumstances. Business expenses are generally allocated in the same proportion as the revenues.
We trust that these comments will be of assistance.
Roger Filion, CPA, CA
Non-Profit Organizations and Aboriginal Issues Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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