17 January 1994 Internal T.I. 9328927 F - 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.

January 17, 1994

Attention:  Gino Nasato Client Assistance

Taxation of Indians - Sharesmen

This is in reply to your memorandum of September 28, 1993 asking that we review and advise you regarding the taxability of income earned by the two Indians described in the enclosed cases that involve status Indians who are "sharesmen" in a fishing enterprise. You also request guidelines to follow in the future for similar cases.

By way of introduction, it would appear in both cases that there are two possible scenarios, all of which are questions of fact. These are that the status Indian is:

1)     self employed (whether or not he is receipt of a T4F from a Fish Company)

2)     employed by the captain of the boat.

Based on the foregoing, our assessment of the situation is as follows.

Our Comments:

As you are probably aware, it is the personal property of a status Indian on a reserve that is exempt from taxation and with the advent of the Williams case (92 DTC 6320) it is now necessary to determine what, if any, factors connect a status Indian's employment income to a reserve. Prior to the conclusions reached in Williams, status Indian employment income determinations were based on the decision reached in Nowegijick (83 DTC 5041). Basically, this required determining the situs of the debtor.

Based on the facts presented, we can conclude that in 1990 and 1991 XXXXXXXXXX was a self-employed fisherman, therefore it will be necessary to determine the location of the permanent establishment of his business (see Interpretation Bulletin IT-62). In making this determination one must look at several factors such as:

1)     where the business activities are performed; 2) the location of the head office; and 3) the location of the books and records.

According to the information supplied, however, he did not have an office on the reserve and did not maintain books and records other than those maintained by the XXXXXXXXXX in an off-reserve site in Vancouver, B.C.. In addition, it appears that he did not perform his duties on a reserve as the fishing operation was conducted on the ocean and not in- land on a reserve lake. Sales were made at sea or in Prince Rupert, neither location of which is on a reserve. Thus, XXXXXXXXXX self- employed fishing income would appear to be taxable as the permanent establishment of his business was not on reserve.

As discussed on November 8, 1993 (Thornley/Nasato), the fact that deductions are being taken for U.I.C. does not necessarily mean that the taxpayer is an employee. There is special U.I.C. legislation in effect that gives self-employed fishermen Unemployment Insurance coverage and thereby requires "designated" employers to complete T4F information returns. You may wish to consult the Departmental pamphlet entitled "Unemployment Insurance Coverage Information for Self-employed Fishermen" for more information on this subject (copy attached).

Our Comments:

In this case too it appears that XXXXXXXXXX was a self-employed business person. For both years he would have to establish that he had a business with a permanent establishment on a reserve in order for his self-employed business income to be non-taxable. You will need to obtain more information in order to make a determination similar to that which we made above concerning XXXXXXXXXX

General Comments

It is difficult to set out definitive guidelines as each outcome is a question of fact. It will be necessary in many such cases where you are dealing with fisherpersons to first determine whether they are employees or self-employed. However, we do offer the following general comments concerning employment and business income of status Indians.

Until the end of 1994, in situations involving employment income, a determination that the "employer is resident on a reserve" is sufficient to exempt employment income. The residence of an employer is determined to be the place where the real business of the employer is carried on or where the central management and control of the business is administered. This is a question of fact to be determined upon a scrutiny of the course of business and trading (De Beers Consolidated Mines Ltd. v. Howe (1906) A.C. 455). Normally, this would be where the directors of the corporation meet and exercise control.

The 'Indian Act Exemption for Employment Income Detailed Guidelines', issued by the Department December 15, 1993, as a result of the Williams decision, are applicable for 1992 and later. We refer you to these guidelines and to the related Taxation Programs Branch memorandum issued December 20, 1993.

In a situation involving business income, a determination of the location of the permanent establishment of the business is necessary.

In determining the "location of the permanent establishment of a business", the factors to consider are:

-     the location where the business activities are carried out, which includes where the employees report for work, where transactions with customers are arranged, and where the inventory is located;

-     the location of the head office; and

-     the location of the books and records.

We understand that Client Assistance is preparing a Questionnaire that when available should assist in making the aforementioned determinations.

You may also note that cases currently under objection or appeal may be subject to the Williams guidelines referred to above, however requested adjustments are subject to the Information circular guidelines noted above.

Roberta Albert for DirectorBusiness and General DivisionRulings DirectorateLegislation and Intergovernmental Affairs Branch