19 June 1990 Ministerial Correspondence 900114 F - Status Indians

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.

Attention: 19(1)

June 19, 1990

Dear Sirs:

Re:  Status Indians

This is in reply to your letter of January 29, 1990 requesting an interpretation of paragraph 81(1)(a) of the Income Tax Act (the "Act") in respect of a particular fact situation.  We apologize for the delay in our response.

The situation outlined is as follows:

     24(1)

     You ask if the portion of the income earned from the project by the Indian band will be exempt from tax by virtue of paragraph 81(1)(a) of the Act and section 87 of the Indian Act.

Our Comments

The nature of your enquiry is such is such that it would appear to relate to a particular taxpayer or taxpayers.  Such enquiries should be directed to your local District Taxation Office.  If, on the other hand, your situation involves a proposed transaction you may wish to request an advance income tax ruling in accordance with the instructions in Information Circular 70-6R.

By way of general comment we note that the situs or origin of business income is usually where the business is situated. However this is a question of fact to be determined from an examination of all the facts.

Generally the determination is made on the basis of where the business has its permanent establishment and where the business is principally carried on.  Some important factors to be considered in making such a determination include:

-      location of the business office

-      where the books and records are kept

-      where business transactions with customers and suppliers are arranged

-      where employees report for work or are paid from

-      where inventory is ordered and often maintained

Where it can be established that the reserve is where the permanent establishment of a business is located, then all of the business income earned by individual status Indians would be exempt.  Where, however the income is earned by a corporation of which band members are shareholders such income is taxable to the corporation.  Similarly where employees of trusts, corporations or partnerships are status Indians and where their employers' permanent establishment is on a reserve, salaries of such Indian employees would be exempt.

It should be noted that an Indian band is not a recognized entity for tax purposes, thus any form of business ownership would have to be held in trust by individual band members. In most cases these would be band counsel members.  Where this is the case, the trust itself is not exempt but any distribution to the Indian beneficiaries within the year would be exempt in the hands of such beneficiaries, and of course, would be a deduction in computing trust income.

We trust our comments will prove helpful.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch