1 March 1994 External T.I. 9329605 - TAXATION OF 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.

		932960
XXXXXXXXXX	J. Humphrey

Attention: XXXXXXXXXX

March 1, 1994

Dear Sir:

This is in response to your letter of October 8, 1993 wherein you requested our views on whether the employment income of status Indian employees of your organization is exempt pursuant to section 87 of the Indian Act following the Williams decision of the Supreme Court of Canada in 1992.

You have informed us of the following:

1) XXXXXXXXXX
is incorporated under the B.C. Societies Act and is a registered charity with Revenue Canada;

2)the "head office" of the Institute is located on a reserve - this based on the fact that your legal records are kept on-reserve;

3) XXXXXXXXXX

4) XXXXXXXXXX

5)

XXXXXXXXXX

You ask whether, based on the above facts, the income of status Indian employees of the Institute would be exempt under section 87 of the Indian Act and ask further whether our view would change under two other scenarios, namely: 1) if the Institute's decision making mind and body (President, Vice-President and Board of Directors) were located on-reserve along with your accounting records and payroll personnel, and 2) if the Institute's complete operations were located on-reserve.

Our Comments

As a result of the Williams case, the Department reviewed its administration of the section 87 Indian Act exemption resulting in the publication of guidelines on the subject on December 15, 1993. We enclose a copy for your review.

It will be a question of fact whether a particular employee's employment income is exempt under the Guidelines. We should also point out that the Guidelines are not mutually exclusive and it would be possible to exempt a portion of an employee's income under one guideline and another portion of the income under another provision.

Guideline 1 will exempt that portion of an Indian's employment income earned on a reserve provided the time spent on a reserve comprises at least 10% of the employee's total time.

Guideline 2 may apply to exempt those employees who live on a reserve and work off-reserve provided the employer is resident on a reserve. Page 11 of the Guidelines provides that:

"employer is resident on a reserve" means that the reserve is the place where the central management and control is actually located;

(note: the central management and control of an organization will normally be considered to be exercised by the group that performs the function of a Board of Directors of the organization and may be exercised in a place other than the principal administrative office of the organization")

Based on your letter it would appear that the Institute is resident off-reserve and hence that Guideline would not apply.

Guideline 3 may apply to those employees who reside on a reserve provided their employment is principally (more than 50% of the time) performed on a reserve. It will also apply to exempt the income of an employee provided their employment is performed principally on a reserve in situations where the employer is resident on a reserve.

Guideline 4 is self explanatory and its applicability will depend on the nature of the Institute and whether it is resident on a reserve.

While in the two alternative scenarios described above, the Institute would appear to meet the test of being resident on a reserve, we wish to emphasize that a final determination of the place of residence of a corporation can only be made retrospectively taking into account all relevant facts.

We trust that this information will be of assistance to you.

Yours truly,

Roberta Albert
for Director
Business and General Division
Rulings and Intergovernmental
Affairs Branch