17 June 1993 Income Tax Severed Letter 9312628 - 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.

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.

MINISTER/DM'S OFFICE                            93-2519T
ADM'S OFFICE
CENTRAL RECORDS
RETURN TO RULINGS, ROOM 303, MET. BLDG.
AUTHOR
SUBJECT OR CORPORATE CASE FILE

June 17, 1993

XXXXXXXXXX

Dear XXXXXXXXXX

          Thank you for your letter of April 20, 1993, requesting my
comments regarding the concerns raised by         XXXXXXXXXX
with respect to the taxation of status Indians.

          Mr. Pierre Gravelle, Deputy Minister of Revenue Canada,
recently responded directly to XXXXXXXXXX on this matter.  I
am pleased, however, to take this opportunity to inform you of Mr.
Gravelle's response.

          A letter was 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 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 your constituents are aware
of other factors which the Department should consider before publishing
the guidelines, I would invite them to provide this information to
Mr. B. Dath of the Department as soon as possible.  His address is:

          Mr. B. Dath, Director
          Business and General Division
          Rulings Directorate
          Legislative and Intergovernmental Affairs Branch
          Revenue Canada, Customs, Excise and Taxation
          Room 300
          88 Metcalfe Street
          Ottawa, Ontario
          K1A 0L8

          A remission order has been 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, 1992, 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 toward an appropriate
application of the Court decision.

                                Yours sincerely,

                                Otto Jelinek

John Brooks 957-2103 June 3, 1993 931262 Y.S. #93-2519T