11 January 1994 External T.I. 9313575 F - Taxation of an Indian's Employment Income

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Status Indian Employment Income

This is in reply to your letter of April 30, 1993 requesting a ruling on allocation of earnings for a group of your employees who are status Indians who will be performing some of their employment duties (about 30% of the time) on the reserve and the balance (70% of the time) off the reserve.

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As well as a ruling with respect to the above noted allocation you request permission not to withhold payroll deduction on the on-reserve exempt income earned by your status Indian employees.

Written opinions with respect to proposed transactions or to the facts of a particular transaction which is related to specific taxpayers are only given in the context of an advance income tax ruling pursuant to the guidelines in Information Circular 70-6R2. A copy of the Circular is enclosed for your purposes. The following general comments are not an advance income tax ruling and are not binding on the Department.

Our Comments:

In the case of employment income earned by a status Indian partially on and partially off a reserve, it has been our policy since at least 1983 to prorate the employment income, thereby providing a partial exemption. Where substantially all (90%) of the employment duties are performed on a reserve, the exemption will apply to the whole of the employment income. In most other cases, the employment income is to be prorated between the duties performed on-reserve and the duties performed off the reserve, with the exemption applying to the on- reserve portion. If, however, substantially all the employment duties are performed off-reserve, and there are no other factors connecting the employment income to a reserve, the whole of the employment income will be taxable. Excluded from these computations would be time spent by employees travelling from their homes on or off the reserve to their employer's place of business and from that location to their homes on or off the reserve.

At present the Department has not published, other than brief comments in the Employers' Guide to Payroll Deductions (a copy of the 1992-1993 Guide is enclosed for your records), any guidelines or formulae for determining the prorata share of exempt and non-exempt status Indian employment income. If the actual hours worked by each employee on the reserve is recorded and retained until the end of the year, this information could be used to make a proration for purposes of issuing T4's. (See pages 48 and 49 of the Guide.) This method may be preferable where employment income and time spent on/off the reserve varies, otherwise, a percentage basis could be used if it closely approximated the actual hours worked basis. Whatever method is used it should be reasonable in the circumstances, supportable, and should be kept available for the scrutiny of the Department's source deduction auditors.

It is not necessary to deduct income tax from the exempt portion of a status Indian's employment income determined in accordance with the information above.

We trust our comments will be of assistance to you.

Yours truly,

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

Encl.

c.c.     Rick Owen