3 June 1994 External T.I. 9403655 - STATUS INDIAN WORKING FOR A SCHOOL

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.

Principal Issues:

Whether employment income received by Indians for work performed off the reserve is taxable, in light of the fact that their salaries are reimburse by the band?

Position TAKEN:

Taxable

Reasons FOR POSITION TAKEN:

The band is not the employer. Generally in situations involving schools and Indians, the band is paying the salaries of native employees of the particular school division to defray the portion of operating costs relating to the Indian student attending a school.

		940365
XXXXXXXXXX		B. Kerr

Attention: XXXXXXXXXX

June 3, 1994

Dear Sir:

Re: Exempt Income for Status Indian

This is in response to your letter of February 7, 1994, wherein you asked us to clarify whether the employment income of native aides employed in schools owned by the XXXXXXXXXX (the "School Division") would be tax exempt for years prior to 1993.

XXXXXXXXXX

You indicated that while paying the aides income tax was deducted, which you understood was required if they were employed off the reserve.

You have also referred to a previous letter by the Department dated September 23, 1993, that was addressed to XXXXXXXXXX Our response in that letter was based on a situation involving the employment of three teacher's aides. We were advised that the employer of the aides was the band and that the band was situated on a reserve. We stated that the exemption from income tax by virtue of the Indian Act would apply to employment income for duties performed off a reserve where the employer is resident on the reserve.

Our Comments

Based on the facts as stated in your letter, it appears that the employer is not the band but rather the School Division. Of course this is a question of fact which can only be resolved by your local District Office and would require a complete review of all facts and other relevant information including an examination of the tuition agreement and the employment contracts of each employee. Although you have not stated so, it appears that the School Division is not located on a reserve.

If the employer is in fact the School Division and it is not resident on the reserve then the employment income for the status Indian employees would be taxable and your understanding that income tax should be withheld is correct.

We also refer you to the case of Elizabeth Poker v. M.N.R. (92 DTC 2267), a case involving a teacher at the Jack River School within the Frontier School Division who claimed exemption on the basis of section 90 of the Indian Act. The Department is appealing this decision. In our view, as her employer was not resident on a reserve her employment income was not exempt. This case which may be similar to the situation in your school division, also involves a Manitoba school division and a tuition agreement.

If you feel that there are significant differences between the facts pertaining to the Jack River School and those involving the schools in your division or if you have any additional information that should be considered in your particular case, I would suggest you write to the Winnipeg District Taxation Office at the following address:

325 Broadway Avenue
Winnipeg, Manitoba
R3C 4T4

We would also like to point out that following the decision in the case of Glenn Williams v The Queen (92 DTC 6320) and as a result of a letter issued by the Department on December 29, 1992, which was followed up with considerable input from the Indian community, the Department has developed "INDIAN ACT EXEMPTION FOR EMPLOYMENT INCOME DETAILED GUIDELINES" which were released on December 15, 1993. A copy of these guidelines is enclosed for your information.

You will note from Guideline 2 that, where the Indian performs his or her duties off a reserve, the employment income of the Indian is tax-exempt only if the employer is resident on a reserve and the Indian lives on a reserve, except where 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. The employment income earned by an Indian off a reserve will also be tax-exempt where the employer is 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, and the employment duties are part of the non-commercial activities of the band council or organization.

Presumably, the School Division (not unlike other school divisions) carries out its mandate through funding received from several sources such as municipal taxes, tuition fees from persons not paying taxes in the School Division's jurisdiction and provincial and federal grants. Our understanding of the arrangements entered into under tuition agreements is that they are intended to defray the portion of operating costs relating to Indian students attending a school. The fact that the School Division has been receiving a portion of its funding from the band does not alter the fact that the Indian employees have been paid from a pooling of funds, received from an employer (the School Division) who is situated off the reserve.

We trust that these comments will be of assistance.

Yours truly,

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