11 January 1994 External T.I. 9304335 F - Yukon Indians - Lands Set Aside vs. Reserves

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.

Mr. Alan McDiarmid Regional Director Yukon Region Indian and Inuit Affairs  300 Main Street Room 415 D Whitehorse, Yukon Y1A 2B5

Dear Mr. McDiarmid:

RE:  Tax Exemption for Indians - The Williams Case

This is in reply to your letter of March 1, 1993 in which you requested our view on the tax exemption for status Indians in the various situations which you described. Your request is an elaboration of the question posed by Mr. Peter Garrett of your office to our taxation centre in Surrey, British Columbia in his letter of January 19, 1993, and therefore this letter is our response to both enquiries. We acknowledge our conversation (Garrett/Brooks) of February 22, 1993 in which we noted that our office is presently determining the effect of the Williams case on specific scenarios. We apologize for the delay in replying.

Our Comments:

We have enclosed a copy of a letter issued on December 29, 1992 by Assistant Deputy Minister, Mr. Denis Lefebvre, to various interested parties regarding the application of the Indian Act tax exemption as a result of the Supreme Court of Canada's decision in the Glenn Williams case. A key purpose of that letter was to inform the Indian community that unemployment insurance benefits were exempt from taxation if they were received in respect of employment income which was exempt from taxation. Such income and benefits are considered to be property of an Indian on a reserve.

In order to reach that decision the Court had to conclude that the situs of the debtor (being on a reserve) is not the sole factor to be considered in exempting income from taxation since unemployment insurance benefits are not paid from a reserve. Rather, the Court indicated that it is more appropriate to weigh all the factors which link the income of an Indian to a reserve. This reasoning satisfies the purpose of section 87 of the Indian Act which is to "preserve the entitlements of Indians to their reserve lands and to ensure that the use of their property on their reserve land was not eroded by the ability of governments to tax, or creditors to seize".

With a view to fairness, tax paid or payable on such unemployment insurance benefits received in taxation year 1985 or later will be refunded.

The Department must now identify the connecting factors which will determine whether the income of an Indian is exempt from taxation. We have every intention of adopting a fair and liberal interpretation that will respect the purpose of section 87 of the Indian Act.

To assist the Indian community, the Department issued guidelines on December 15, 1993 that describe the situations where the exemption applies. A copy of the guidelines and the covering letter are also enclosed. It has been determined that the exemption will apply in the following employment situations:

-     where the duties are performed entirely on a reserve;

-     where the duties are performed primarily on a reserve and either the Indian lives on a reserve or the employer is resident on the reserve;

-     where the duties are performed off reserve but the Indian lives on a reserve and the employer is resident on a reserve; and

-     where the Indian is an employee of an Indian band which has a reserve, a tribal council representing one or more Indian bands which have reserves, or an Indian organization controlled by one or more such bands or tribal councils and dedicated exclusively to the social, cultural or economic development of Indians who for the most part live on reserves; the duties of employment are part of the non-commercial activities of the band, council or organization; and the band, council or organization is resident on a reserve.

The Department remains of the view that it is appropriate to prorate the exemption in other cases where duties are performed both on and off a reserve.

A remission order has been passed to ensure that no one will be adversely affected by the Glenn Williams decision prior to 1994. Also, since the guidelines were only just released, the Government will be extending the transition period to December 31, 1994, to allow those who may be negatively affected sufficient time to become aware of the implications of the guidelines and to rearrange their affairs if necessary.

We note that you have referred to "band lands" whereas in the Glenn Williams case the term "reserve" was used. As you are aware, "reserve" as defined in the Indian Act means a tract of land, the legal title to which is vested in Her Majesty, that has been set aside by Her Majesty for the use and benefit of a band. For 1985 and subsequently, the term includes certain Indian settlements which are deemed under "The Indian and Bands in Certain Settlements" Remission Order (May 14, 1992).

There are 12 such settlements:

in Alberta, Cadotte Lake Settlement (Woodland Cree) Fort MacKay Settlement Little Buffalo Settlement, Lubicon Lakein Ontario, Long Dog Lake Settlement (Wawakapewin) Kee-Way-Win Settlement Savant Lake Settlement (Saugeen Nation) McDowell Lake Settlement Slate Falls Settlement (New Slate Falls) Aroland Settlement Grandmother's Point Settlement (Landsdowne House) in Quèbec, Kanesatake (Oka) Ouje-Bougoumou.

You stated that "band lands" are lands owned by the federal government and controlled by the Department of Indian and Northern Affairs ("DINA"), which have been set aside for Indians under the Territorial Lands Act. You described them as having set boundaries just as do reserves. You pointed out that these lands will be "settlement lands" under land claims and that DINA treats these lands as reserves.

However, such lands are not reserves and are not treated as reserves for purposes of the Income Tax Act.

In the Glenn Williams case, the Court ruled that to determine the location of an Indian's property, one has to examine various "connecting factors" which tie the property to one location or another.

To be exempt from tax by virtue of section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act, there must be sufficient connection of the employment to a reserve. If the lands in question are not reserves and are not deemed to be reserves, the comments stated above regarding exemptions will have no application to the scenarios you presented for our consideration.

We trust that our comments are of assistance.

Yours truly,

R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch