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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
March 8, 1994
Edmonton District Office Head Office
Source Deductions Rulings Directorate
A. M. Brake
Attention: D. Hamel (613) 957-8953
930603
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This is in reply to your round trip memorandum dated February 24, 1993 concerning whether employment income of an Indian living on a reserve and performing duties of
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We apologize for the delay in responding.
FACTS:
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The decision of the Supreme Court of Canada in the Glenn Williams (92 DTC 6320) case, required the Department to reconsider its interpretation of the scope of the exemption from income taxation enjoyed under the Indian Act by Indians. The case decided that unemployment insurance benefits received in respect of employment income that was exempt from taxation were also exempt from taxation.
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 with a reserve with a view to meeting the purpose of section 87 of the Indian Act which is to "preserve the entitlement of Indians to their reserve lands and to ensure that the use of their property on their reserve was not eroded by the ability of governments to tax, or creditors to seize."
Under the Indian Income Tax Remission Order (the "Remission Order"), effective for 1992 and 1993, providing they were previously exempt on account of Nowegijick, income tax is remitted on the off-reserve employment income received by Indians from employers residing on a reserve.
During 1993, the Department met with many interested parties concerning the taxation of Indians and with input from the Indian community has developed "INDIAN ACT EXEMPTION DETAILED GUIDELINES". These guidelines were released on December 15, 1993. A copy of these guidelines was attached to a letter sent by the Taxation Programs Branch to all District Offices, Processing Centres and the International Tax Office on December 20, 1993. The Department now views the Indian Act exemption as applying to employment income as follows:
(1)Employment income of an Indian for duties performed on a reserve will be exempt from income tax.
(2)Employment income of an Indian for duties performed off a reserve will normally be exempt from income tax where
(a) the employer is resident on a reserve, and
(b) the Indian lives on a reserve,
except where it can reasonably be considered that one of the main purposes for the existence of the employment relationship is to establish a connecting factor between the income in question and a reserve.
(3)Employment income of an Indian for duties performed off a reserve will normally be exempt from income tax where
(a)the duties of the employment are principally performed on a reserve, and
(b)the employer is resident on a reserve, or
(c)the Indian lives on a reserve,
except where it can reasonably be considered that one of the main purposes for the existence of the employment relationship is to establish a connecting factor between the income in question and a reserve.
(4)Employment income of an Indian for duties performed off a reserve will normally be exempt from income tax where
(a)the employer is 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,
(b)the duties of employment are part of the non-commercial activities of the band, council or organization, and
(c)the band, council or organization is resident on a reserve.
PRORATION RULES
Where a portion of the employment income could be viewed as exempt because employment duties related to that portion are performed on a reserve, which falls under the first guideline, and the off reserve portion of the income is not otherwise exempt by virtue of the application of the other guidelines the Department will view the exemption as applying as follows:
(a)In a case where substantially all of the employment duties are performed on a reserve, the exemption applies to the whole of the employment income;
(b)In a case where substantially all of the employment duties are not performed on a reserve, the whole of the employment income will be taxable; and
(c)In any other case, the employment income is to be prorated between the duties performed on a reserve and the duties not performed on a reserve, with the exemption applying to the portion of the income related to the duties performed on the reserve.
In calculating the time spent performing the employment duties on a reserve, travel time to and from the reserve is not included.
The meaning of some of the terms as used in the guidelines are as follows:
"Indian lives on a reserve" means the Indian lives on the reserve in a domestic establishment that is his or her principal place of residence and which is the centre of his or her daily routine.
"principally" means 50%.
"substantially all" means 90%.
As these guidelines were only just recently 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 arrange their affairs if necessary. This extended transition period will only apply to arrangements already in place.
In this particular situation, should 10% or more of the duties be considered to have been performed on the reserve, in our view, proration rule (c) would be applicable to prorate employment income between the duties performed on a reserve and the duties not performed on a reserve, with the exemption applying to the portion of the income related to the duties performed on the reserve.
R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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