25 March 1994 Internal T.I. 9402127 - INDIANS - FISHING 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.

									March 25, 1994

	Technical Publications Division		Head Office
	William McColm, Chief				Rulings Directorate
C. Chouinard
 	Attention:  Mary Evans				957-8953

									7-940212

Remission of Tax - Status Indian Earning Fishing Income

This is in reply to your memorandum of January 28, 1994 regarding the above-captioned matter.

We understand that the taxpayer, a Status Indian who earns income from fishing, has requested a remission of tax for the 1988 taxation year. In coming to its conclusion that a remission of tax was not warranted, the District Office determined that the permanent establishment of the taxpayer's fishing business was off the reserve. You ask for our comments regarding the District Office's conclusion with respect to the location of the permanent establishment of the business.

Our Comments

As a fisherman, the taxpayer is a self-employed businessman and the income derived from fishing is considered business income. There are presently two cases before the Courts (Pete, 91 DTC 204 and Charleson, 91 DTC 844) regarding the tax status of business income earned by Indians. The Department's position, which is set out in Interpretation Bulletin IT-62, will be maintained pending the resolution of these cases. Thus, business income of an Indian will be tax exempt if the permanent establishment of the business is located on a reserve. As the taxpayer was a self-employed businessman in 1988, the income derived from fishing will be exempt if the permanent establishment of his business was located on a reserve.

In determining the location of the permanent establishment of a business, the following factors are considered:

• the location where the business activities are carried out, viz., where 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.

The determination of permanent establishment of a status Indian's business is a question of fact which the District Office is in a better position to establish. We note that the Department is committed to a fair and liberal approach in dealing with the Indian Act exemption, however, we find nothing improper in the District Office's assessment of this situation. For a small owner-operated business, it is possible to have a permanent establishment of a business which is different from the owner's residence. However, conclusive evidence must be available to support such a contention. In addition, in this particular case, the taxpayer claims that for the 1989 to 1992 taxation years his business has moved off the reserve. We question what the taxpayer feels are the decisive, and different, facts which place his business off a reserve for those years.

We are enclosing the taxpayer's 1988 to 1992 T1 returns.

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

Encl.