7 April 1994 External T.I. 9403895 - INDIANS - TAXATION OF EMPLOYMENT INCOME - OFF THE RESERVE

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?

Position TAKEN:

taxable

Reasons FOR POSITION TAKEN:

All the duties were performed off the reserve for an off-reserve employer and the Indians were not resident on the reserve.

										5-940389
XXXXXXXXXX                 C. Chouinard

Attention: XXXXXXXXXX

April 7, 1994

Dear Sir:

Re: Taxation of Employment Income Earned by Status Indians

We are writing in response to your letter, which we received on February 15, 1994, wherein you asked for our comments regarding the tax status of employment income earned off-reserve by Status Indians.

You describe the following situation: the Status Indians perform the duties of their employment off the reserve. Approximately 85 to 90% of the individuals served by the organization that employs them are Status Indians. Some of the Indians live off the reserve due to a lack of suitable housing on the reserve.

You ask whether the employment income earned by these Indians would be tax-exempt in light of the Clark v. R., 92 DTC 2267 case.

Our Comments

Following the Supreme Court of Canada decision in the Williams case, (92 DTC 6320), the Department developed guidelines to clarify which types of employment situations qualify for the Indian Act tax exemption. According to these guidelines, in this situation, where the employment duties of the Indians are performed entirely off a reserve, the employment income earned will be tax-exempt only if both the employer is resident on a reserve and the Indian lives on the 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.

With respect to the residence of the employer, the courts have established that the residence of a corporate employer is where its central management and control lies. Central management and control of a corporation is normally the place where the directors of the corporation meet and exercise control. We are unable to determine from the limited information provided whether the employer would be considered resident on the reserve in this situation.

Where, however, the employment duties are performed entirely off a reserve for an on-reserve employer that is an Indian Band, a Tribal Council or an Indian organization which is dedicated exclusively to the social, cultural or economic development of Indians who for the most part live on reserves, and the duties are part of the non-commercial activities of the band, council or organization, the employment income earned by the Indians will be tax exempt.

The Court's decision in the Clarke case is, in the case of William Clarke, not at variance with the Department's guidelines since Mr. Clarke performed most of his duties on a reserve and also resided on the reserve. The decisions regarding Marianne Folster and Elizabeth Poker conflict with the guidelines and the Department has appealed both decisions. Based on the guidelines, the employment income earned by these two Indians would not be tax-exempt since they performed all of their duties off the reserve for an off-reserve employer and neither of them were resident on the reserve. Since the situation you describe appears to be similar to that of Marianne Folster and Elizabeth Poker, the employment income earned by the Indians will not be tax-exempt.

We are enclosing a copy of the Indian Act Exemption for Employment Income Detailed Guidelines for your information.

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

Encl.

c.c. Rick Owen, Client Assistance