26 July 1990 Ministerial Letter 901558 F - Native Business Interpretation

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.

July 26, 1990

Dear Sirs:

Re:  Native Business Interpretation

This is in reply to your letter of June 25, 1990 requesting clarification with respect to certain activities 24(1) undertaking with status Indians.

You are particularly concerned about the tax status of interest earned by status Indians from money on deposit at  24(1).

As a result of the decisions in Nowegijick v. R., 83 DTC 5041 and in R. v. National Indian Brotherhood, 78 DTC 6488 the courts have held that it is the situs of the payer that determines, to a large extent, whether or not a payment of income to a status Indian is taxable or exempt income.

Where the situs of the payer (generally the principal place of business) is on the reserve, the receipt of that income by a status Indian, wherever he or she may be, is considered exempt income.

An exception is made with respect to the "principal place of business" comment above where interest earned on a bank account is concerned.  The Department's position in this matter is contained in Interpretation Bulletin IT-62 where paragraph 6(iv) states, "Interest on a bank account is earned at the location at which the funds are on deposit, i.e. the specific bank branch address".  We are enclosing a copy of IT-62 for your information. We note, however, that a number of changes to this bulletin are being considered.  If you are in doubt about any of the matters raised in this Bulletin please contact your local district taxation office or write to the Rulings Directorate as you did in this matter.

Having stated the foregoing as background information, your questions will be answered in the order raised.

a)     Interest earned and credited on a deposit maintained at the 24(1) where the status Indian physically attends that branch and is a member of the 24(1)     band is received as exempt income pursuant to paragraph 6(iv) of IT-62.

b)     Interest earned and credited on a deposit maintained at the 24(1) where the status Indian uses the automated teller system (and does not physically attend the branch) and is a member of the 24(1) band is received as exempt income as in (a) above.

c)     Interest earned and credited on a deposit maintained at the 24(1) where the status Indian physically attends that branch but is not a member of the 24(1)     band is received as exempt income as in (a) above.

d)     Interest earned and credited on a deposit maintained at the 24(1) where the status Indian uses the automated teller system (and does not physically attend the branch) and is not a member of the 24(1) band is received as exempt income as in (a) above.

e)     Interest earned on guaranteed investment certificates offered by the 24(1) is considered taxable in the hands of a status Indian as the situs of the payer is off the reserve.  The situs of the payer in this case would be the Head Office of the 24(1) which presumably is not on a reserve anywhere.

f)     Interest earned on Canadian government Treasury Bills is considered taxable in the hands of status Indians as the situs of the payer, the Government of Canada, is off the reserve.

g)     Interest earned and withdrawn from an RRSP is taxable in the hands of a status Indian as RRSP's are trusted and from information received, we understand that the trustees are generally situated in a Head Office location which is not on a reserve.  The foregoing applies not only to interest but to all withdrawals from RRSP's by Indians.

We trust this is the information requested.

Yours truly,

E.M. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

Enclosed