21 April 1992 Ministerial Letter 9309928 F - Indians and Employment Income — 36 Indian Act

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.

ADM'S OFFICE ADM930291 CENTRAL RECORDS RETURN TO RULINGS, ROOM 303, MET. BLDG.

XXXXXXXXXX

Dear XXXXXXXXXX

Thank you for your letter of March 23, 1993 expressing your concerns with respect to the taxation of status Indians, particularly those associated with the XXXXXXXXXX  On December 29, 1992, I issued a letter 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 the 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 will issue guidelines that will describe the situations where the exemption applies. For instance, it has already been determined that the exemption will apply to:

-     employment income for duties performed entirely on a reserve;

-     employment income for duties performed entirely off a reserve where the employer resides on a reserve and the Indian lives on the reserve;

-     employment income for duties, a substantial amount of which are performed on a reserve and either the employer is located on the reserve, or the Indian lives on the reserve; and

-     unemployment, pension and retiring benefits received in respect of exempt employment income.

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

We appreciate, however, that there may be other situations where the income is linked to a reserve in a manner that warrants a tax exemption. In developing the guidelines, the Department will anticipate as many of those situations as possible. If you or your Band members are aware of other factors which the Department should consider before publishing the guidelines, I would invite you to provide this information to Mr. B. Dath of the Department as soon as possible. His address is:

Mr. B. Dath, DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch Revenue Canada, Taxation Room 300 88 Metcalfe Street Ottawa, Ontario K1A 0L8.

A remission order will be passed to ensure that no one will be adversely affected by the Glenn Williams decision prior to 1994.

As you can see, the December 29 letter is not about a new policy concerning the taxation of Indians. It deals only with information regarding the administration of the Income Tax Act following a court decision. This is not a new practice. There have been many court decisions over the years clarifying the meaning of section 87 of the Indian Act and the Department has always been guided by such decisions.

I would like to reiterate that it would be most useful to have input in the development of the guidelines. I am confident that, with such participation, progress will be made towards an appropriate application of the Court decision.

In closing I would like to comment on your reference to section 36 of the Indian Act and the fact that Indian bands are purchasing lands off reserves more often for the use of their members.

It is the view of the Department that purchased lands are not lands that "have been set apart for the use and benefit of a band" as required by that section of the Indian Act. Lands "set apart" in the context of section 36 of the Indian Act would be lands set apart for the use and benefit of a band by Her Majesty in right of Canada or a Province.

Yours sincerely,

Denis Lefebvre Assistant Deputy Minister Legislative and Intergovernmental Affairs Branch