15 May 1992 Internal T.I. 9212787 F - Taxation Of Indians-Situs Of Payor

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.

May 15, 1992

Source DeductionsBusiness and GeneralPayroll Audit Division

Winnipeg D.O.

Attention: Marilyn Dudek

Situs of Payor - 24(1)

This is in reply to your memorandum dated April 10, 1992 concerning the situs of 24(1).

FACTS

24(1) 24(1) 24(1)

It is your opinion that the Head office for the agency is located in 24(1).  All books & records are located there.  All payroll is handled through there, the main signing authorities are situated there and the executive is there 24(1).  As indicated previously the funding was not "given" but accountable.

OUR COMMENTS

The tax status of income earned by Indian employees has been considered by the Courts.  The courts have determined that salary or a right to salary is property, therefore we must determine whether the personal property of an Indian is situated on a reserve.  This issue was considered by the Federal Court-Trial Division in The Queen v. The National Indian Brotherhood 78 DTC 6488.  The court held that the right to a salary, being a simple contract debt, has as its situs the residence of the debtor or the place where the debtor is found.  Thus, it was concluded in the National Indian Brotherhood case: "as the salaries in question of the individual Indians until paid were simple contract debts owed by a corporation not resident on a reserve, it is my view that they were not situated on a reserve within the meaning of subsection 87(1)."

The Supreme Court of Canada, in the case of Nowegijick v. the Queen 83 DTC 5041, obiter cited this judgement with approval.  Accordingly it is the residence of the employer which determines whether a salary is "situated on a reserve".

As a result, income earned by an Indian from employment on a reserve but paid to him or her by an employer situated off the reserve is taxable.  A Remission Order, was issued for the 1983 to 1985 taxation years remitting to an Indian for those years, the difference between the income taxes payable by an Indian and the income tax that would have been payable if the income attributable to work performed on a reserve were not included in computing income for those years.  This order was extended through to 1990 and it is anticipated it will be extended through 1992 although it has not yet been proclaimed in force. 

Therefore, in the case presented, the employment income of an Indian is exempt if the 24(1) employee performs the service on the reserve or if the employer is considered to have a permanent establishment on the reserve.

In determining where the situs or origin of a business is one should consider the following factors:

- the location of the business office

- where the books and records are kept

- where transactions with clients and or suppliers are arranged

- where employees report for work or are paid from

- where inventory or stock supplies are ordered and maintained

While the 24(1) is not in fact a corporation, we can draw an analogy between this determination and the cases that establish criteria to determine the residence of a corporation.

The leading case on the residence of a corporation was a 1906 British case, DeBeers Consolidated Mines Ltd. v Howe, (1906) A.C. 455, whereby it was established that the residence of a corporation is where it's central management and control lies.  The case of The King v. British Columbia Electric Railway Company Ltd.,2 DTC 824 established the principle that the place of incorporation of a company is not relevant by itself.  Bedford Overseas Freighters Ltd. v. M.N.R., 70 DTC 6072 illustrates the application of the "central management and control" rule to a Canadian fact situation.  In this case it was held that Bedford's "management and control of the company and attention to its interests and affairs were exercised and given to a substantial degree, de jure and de facto, within Canada".  In reaching this decision while admitting that major decisions may have been made out of Canada, the courts looked at the following facts in arriving at its conclusion:

Bedford appointed a Halifax company to maintain its books of account. The company's records were kept by a related company in Halifax. Bedford acquired permits required of Canadian companies. From the facts you have presented, we must agree with your conclusion, that it appears evident that the central management and control of The24(1) is not located on a reserve.  Therefore, if the work is performed on a reserve by a status Indian the income would in fact be subject to the Indian Remission Order, otherwise the income earned by an employee of the 24(1) would in fact be taxable.

21(1)(b)

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