3 February 1994 External T.I. 9321565 - STATUS INDIAN- 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.

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.

XXXXXXXXXX 932156

Attention: XXXXXXXXXX

February 3, 1994

Dear Sirs:

Re: Employment Income of Status Indians

This is in reply to your letter of July 23, 1993 which was written in support of a letter dated June 29, 1993 from XXXXXXXXXX a copy of which you attached for our purposes.

You advise that your situation is similar to that of XXXXXXXXXX In this respect your head office (finance and personnel services) is located on the reserve and your program services are located within one mile of the reserve on federal crown land.

XXXXXXXXXX

You further indicate that 90% of your employees are status Indians, most of whom reside on a reserve, although some live off-reserve but in close proximity to the reserve. One hundred percent (100%) of your work is in the direct service of aboriginal people.

You ask that we confirm your reasons why tax exemption should be maintained.

Our Comments

Prior to 1992 the employment income of status Indians performing services off-reserve for an on-reserve employer was considered, in accordance with the decision in Nowegijick, 83 DTC 5041, exempt income for purposes of section 87 of the Indian Act. In that case it was held that an Indian is not required to pay tax on income earned from a corporation with its head office on a reserve, even though employment duties were carried out at an off-reserve location. In the Williams case, 92 DTC 6320, it was stated that "Simply adopting conflict of law principles based on the off-reserve residence of the debtor (the "Crown") would not be in keeping with the purposes underlying the Indian Act." In that case all the potential connecting factors, such as the taxpayer's residence and the location where the work was performed, pointed to the reserve. As a result of the Williams case it is now necessary to look at the various factors that connect an Indian's employment income to a reserve.

We have enclosed a copy of a letter issued on December 15, 1993 by Assistant Deputy Minister, Mr. Denis Lefebvre, to various interested parties regarding the application of the Indian tax exemption as a result of the Supreme Court of Canada decision in the Glenn Williams case. These guidelines determine that the exemption will apply in the following employment situations:

• where the employment duties are performed entirely on a reserve;
• where the employment duties are performed primarily on a reserve and either the Indian lives on a reserve or the employer is resident on the reserve;
• where the employment duties are performed off reserve but the Indian lives on a reserve and the employer is resident on a reserve; and
• where the Indian is an employee of an Indian band which has a reserve, a tribal council representing one or more Indian bands which have reserves, or an Indian organization controlled by one or more such bands or tribal councils and dedicated exclusively to the social, cultural, or economic development of Indians who for the most part live on reserves; the duties of employment are part of the non-commercial activities of the band, council or organization; and the band council or organization is resident on a reserve.

It appears from your description that your employees would fall within the fourth guideline stated above and it also appears from the pamphlet description that the XXXXXXXXXX is dedicated to the social, cultural, or economic development of Indians resident on reserves. However, whether or not the head office of a particular entity is on a reserve is a question of fact. In this respect the courts have established that the residence of a corporate employer is the place where the employer exercises control and management. Central management and control of a corporation is normally the place where the directors of the corporation meet and exercise control. We have not been provided with sufficient information to make a definitive comment, however, if the head office of the XXXXXXXXXX as employer, is the place where control and management is exercised then the business is in fact resident on a reserve. Where this is the case, Indian employees of the XXXXXXXXXX who are involved in the non-commercial activities of the Council will be considered exempt from income tax on their employment income regardless of where they work or reside.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

c.c. Rick Owen