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 Sir:
RE: Taxation of Status Indians
This is in reply to your facsimiles of July 6 and August 16, 1993 addressed to Kathy Ager of the Saskatoon District Office that were referred to us for reply.
In addition to advance income tax rulings, the Rulings Directorate provides written opinions on the interpretation of specific provisions of the Income Tax Act. We do not, however, provide tax planning, i.e., we do not comment on or suggest alternatives regarding the different methods of structuring transactions to give the best tax consequences. Tax planning falls within the purview of tax consultants, accountants and lawyers.
Although we cannot provide you with tax planning advice, we nevertheless offer the following general comments.
Our Comments:
According to Section 87 of the Indian Act, the following property is exempt from taxation:
(a) the interest of an Indian or a band in a reserve or surrendered lands; and (b) the personal property of an Indian or band situated on a reserve.
No Indian or band is subject to taxation in respect of ownership, occupation, possession or use of property mentioned in paragraphs a) or b) or is otherwise subject to taxation in respect of any such property.
Under the Indian Act, the personal property, including income of an Indian, when situated on a reserve, is exempt from taxation. Although the decision in the case of Glenn Williams v. R., 92 DTC 6320, dealt primarily with the taxation of unemployment insurance benefits received by Indian individuals, it also discussed factors to consider in determining whether income is tax exempt or not. Specifically, the Court ruled that to determine if an Indian's income is situated on a reserve and thus tax exempt, it is necessary to look at all relevant factors connecting the income to a reserve.
After analyzing the case and receiving input from the Indian community, the Department developed guidelines which explain the application of the tax exemption relating to an Indian's employment income. The goal of these guidelines is to clarify which types of employment situations qualify for the Indian tax exemption. We are enclosing a copy of the guidelines which were issued on December 15, 1993 for your information.
The Department's existing position with respect to business income as set out in Interpretation Bulletin IT-62, a copy of which is enclosed, will be maintained pending resolution of two cases before the Courts (Pete, 91 DTC 204 and Charleson, 91 DTC 844). As indicated in the Bulletin, business income earned by an Indian will be tax exempt if the permanent establishment of the business is located on a reserve. In determining the location of the permanent establishment of a business, the following factors are important but not necessarily conclusive:
- the location where the business activities are carried out, viz., where employees report for work, where transactions with customers are arranged, where contracts are signed, and where the inventory is located;
- the location of the head office, if different from the business location; and
- the location of the books and records.
In addition, the Department is currently reviewing its position regarding other types of income, including income from a trust, as a result of the Williams decision.
We trust that these comments will be of assistance.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
Encl.
cc. Rick Owen Kathy Ager
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