19 October 1993 External T.I. 9316475 F - 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.

XXXXXXXXXX 

Dear XXXXXXXXXX

RE:  XXXXXXXXXX, Status Indian

This is in reply to your letter of May 18, 1993 concerning your request for a determination of the taxability of the employment income of XXXXXXXXXX under the Income Tax Act and the Indian Act.

XXXXXXXXXX

She has requested income tax exemption under the Indian Act and the Indian Remission Order.

XXXXXXXXXX

XXXXXXXXXX

Our Comments:

The Indian Remission Order remitted tax on certain employment income of Indians derived from employment duties carried out on reserves. It was not renewed after 1992 as generally this type of income will, as a consequence of the decision in the Glenn William's case, 92 DTC 6320, now be exempt under the Indian Act.

The Department's general view as a consequence of the decision in the Glenn William's case with respect to employment income is that where the duties of employment are performed on a reserve, the employment income related to that employment will be exempt and where the duties of employment are performed off a reserve, it will be necessary to consider the other principal factors which might connect the employment income to a reserve. Two such factors are the location of the employer and the residence of the employee. Where both of these factors are present they connect employment income to a reserve and it is our view that the exemptions under the Indian Act will apply, even if the employment duties are performed off a reserve.

In the case of employment income earned partially on and partially off a reserve, it has been our policy since 1983 to prorate the income, in effect providing a partial exemption. Therefore, where employment duties are performed partially on and partially off a reserve, the Department views the Indian Act 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 significant employment duties are performed on a reserve and the employer is located on a reserve or the employee resides on a reserve, the exemption applies to the whole of the employment income.

(C)     In any other case, the employment income is to be prorated between the duties performed on reserve and the duties performed off reserve, with the exemption applying to the on reserve portion. If 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.

The guidelines set out above are not necessarily the Department's final position. The Supreme Court made clear in the Glenn Williams case that the "connecting factors" set out in the case were not an exhaustive list. Before finalizing its guidelines, the Department is seeking input from representative Indian groups, to determine their views as to what other factors, if any, should be considered when connecting employment income to a location on or off a reserve.

As can be seen from the above it is the income earned from duties actually performed on a reserve that is exempt in the hands of a status Indian. In XXXXXXXXXX case we understand that some portion of 75% of her work is performed on a reserve and therefore would, subject to (C) above, be exempt. However, as we have no details regarding the work that is "conducted (off reserve) for the benefit of and/or in concert with XXXXXXXXXX", we are unable to state whether or not it would be a factor "connecting" her income to a reserve. On the surface it would not appear so. In the absence of sufficient relevant factors to connect employment income to a location on a reserve, employment income received for performing services in off-reserve locations is not exempt under section 87 of the Indian Act.

As indicated previously, the Department is seeking input from interested parties prior to publishing guidelines in this matter. Should XXXXXXXXXX wish to provide written comment in support of her position that a portion of her income not performed on a reserve should be exempt she can write to the following address:

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

We trust our comments will be of assistance to you.

Yours truly,

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