29 October 1992 Income Tax Severed Letter 9220875 - 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.

922087
                                           Glen Thornley
          19(1)                            (613) 957-2101

October 29, 1992

Dear 19(1) Re: Employment Income of a Status Indian:

This is in reply to your letter of July 2, 1992 requesting that we review the information regarding hours worked on and off a reserve in connection with your terms of employment with 24(1) and determine if you are able to make a claim for exemption under the Indian Remission Order (the "Order").

The Rulings Directorate provides, in addition to formal advance income tax rulings, written opinions on the interpretation of specific provisions of the law. The district taxation offices, however, will consider requests for written opinions on completed transactions and provide over-the-counter advice and assistance on routine matters. A determination such as you request is one of the types of opinions supplied by a district taxation office. Notwithstanding the foregoing, the following are general comments relative to your enquiry.

Our Comments Paragraph 81(1)(a) of the Income Tax Act exempts from taxation an amount which is declared to be exempt from income tax by any other enactment of the Parliament of Canada. In the case of a status Indian, this entitlement arises from the Indian Act. Employment income earned by a status Indian may be exempt depending on the factors connecting the income to a location on or off a reserve: see the Glenn Williams case, 92 DTC 6320. Since 1983, the Order provides for the remission of taxes paid on certain types of income which are reasonably attributable to duties performed on a reserve by a status Indian whose employer is not situated on a reserve. In our view, the words `duties performed on a reserve' include only those duties which are physically performed on the reserve. They would not include duties performed off the reserve that relate directly to on-reserve issues. Nor do they include time spent in travelling to and from the reserve to perform duties on the reserve.

In our view, the Order contemplates an allocation of employment income for the year, which would include annual and sick leave, based on the performance of duties both on and off the reserve. To illustrate, assume a status Indian (whose employer does not reside on the reserve), earns a salary of $2,000 monthly ($24,000 annually), earns one month paid annual leave in the year, works on the reserve for 8 months and away from the reserve for 3 months (which together with 1 month of paid annual leave taken, equals 12 months). The portion exempt pursuant to the Order, ie., the portion that is reasonably attributable to duties performed on the reserve, could be calculated as 8/11 x $24,000 or $17,455. In this example, the annual leave is simply allocated as part of the total income for the year.

As another example, assume that out of a total of 260 working days, a status Indian worked 41 days on a reserve and a total of 23 days of vacation/sick leave was taken during the total working period. The number of days not taxable in this example is calculated as follows:

41 days + (41 days/237 days x 23 days) = 41 + 4 (rounded from 3.98) = 45 days

Assume the annual salary was $45,000, the exempt income would be:

45 days/260 days x $45,000 = $7,788.

While actual situations will vary, the same principles would apply. Revenue Canada, Taxation has a publication called `Employers Guide to Source Deductions' which sets out guidelines for `Status Indian employees' on pages 49-50. We have enclosed a copy of these pages for your information.

Although our review of your hours worked on and off the
reserve indicates to us that a portion of your earnings
would be covered under the Order and, thus, you are entitled
under the Order to a partial remission of taxes, a
definitive determination will have to be made by a district
taxation office.  Generally, this would be the one that
services your income tax return, probably the
24(1) district office. We suggest you refer the
information contained in your letter, along with a copy of
this letter, to the 24(1) District Taxation
Office for their determination. 
As you requested, we are sending a copy of our reply to 
                         19(1)
   . We point out, however, that there is no requirement
under the Order for employers to cease withholding payroll
taxes in cases where employees are covered by the Order. 
Permission not to withhold may be obtained from the Source
Deduction section of a district taxation office. 

We trust that these comments will be of assistance. If you have any further interpretive questions, do not hesitate to contact us, otherwise personnel at a district taxation office or taxation centre should be able to answer your questions.

We trust our comments will be of assistance to you.

Yours truly,

E. Wheeler for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

c.c. 19(1)

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