2 February 1994 Administrative Letter 9337336 F - Indians - Employment Agency

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.

February 2, 1994

Source Deductions Division     Head OfficeDistrict Office and Taxation Centre      Rulings DirectorateSupport Services      957-8953

Attention:  R. Cousineau

Taxation of Status Indian

This is in reply to your Memorandum of December 22, 1993, concerning the employment income of XXXXXXXXXX

The taxpayer's representative, XXXXXXXXXX states that his sales are made primarily to native customers on the reserve. He has also indicated that the sales contracts are signed on the reserve and payment is made on the reserve.

You have indicated that while there are sales finalized on the reserve, the taxpayer works for an off-reserve employer and that it is at the employer's place of business that he reports for work and performs the bulk of his duties. In your view, the fact that sales are finalized on the reserve is a factor that is not sufficient to connect the income to the reserve. You have also stated that a portion of the employment income could be viewed as exempt because employment duties related to that portion are performed on a reserve. However, the duties performed on reserve would have to be more than 10% of all of the employment duties in order for the duties performed on the reserve to be considered exempt. You have asked for our comments concerning the taxation of this taxpayer based on the "Indian Act Exemption Detailed Guidelines" issued by the Department on December 15, 1993.

Subsequently, on January 17, 1994, you sent us a copy of a letter sent by XXXXXXXXXX to the Department concerning a document between another company (X-Ltd.") and another XXXXXXXXXX ( the "Dealer"). The document appears to be an agreement between X-Ltd. and the Dealer wherein X-Ltd. will provide the Dealer with such services and labour as it requests.

The agreement provides that X-Ltd will be paid amounts that are based on the number of hours that these employees work performing services for the Dealer. The agreement also indicates that these amounts will be paid to X-Ltd. as an independent contractor. In other words X-Ltd will contract out its employees to perform these services for the Dealer, in the same way as an employment agency would. We will assume that X-Ltd. is located on a reserve. XXXXXXXXXX has asked several questions regarding source deductions in this type of situation.

Our Comments:

In regards to your December 22, 1993, letter we agree with your view that the place where the sales are finalized would be a factor that should be given very little weight in attempting to connect a status Indian's employment income to a reserve and that in order to have a portion of the employment income exempt, the taxpayer would have to perform more than 10% of all of his employment duties on the reserve.

In our view, based on the information provided, it would appear that less than 10% of all of the taxpayer's employment duties are performed on the reserve. Consequently, all of his employment income would be taxable.

In regards to your correspondence of January 17, 1994, the situation involving X-Ltd. and the Dealer would appear to be a situation to which the exceptions to guidelines 2 and 3 were meant to apply. It would be our view that it can reasonably be considered that one of the main purposes for the existence of the employment relationship is to establish a connecting factor between the income in question and a reserve. Consequently, in these situations the exemption from taxation would not apply to the employment income of the employees of X-Ltd.

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

cc.      R. Owen, Client Services Directorate     David Cowie, Vancouver District Office