24 May 1994 Internal T.I. 9406487 - EMPLOYMENT INCOME - INDIAN

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.

		May 24, 1994

	XXXXXXXXXX District Office	Head Office
	Client Assistance	Rulings Directorate
B. Kerr
	Attention:  XXXXXXXXXX	(613) 957-8953
		940648

Re: Status Indian Working Off Reserve

This is in response to your memorandum of March 8, 1994, wherein you requested that we determine the taxability of the employment income of a taxpayer XXXXXXXXXX who is a status Indian.

We understand that the taxpayer lives with his non-Indian spouse in XXXXXXXXXX which is not on a reserve. He works off reserve at a gas station/convenience store located on the XXXXXXXXXX The owner of the gas station is XXXXXXXXXX a status Indian who lives on the XXXXXXXXXX reserve. Her business office is located on the reserve which is approximately nine miles from the gas station.

Our Comments

As you know during 1993, the Department met with many interested parties concerning the taxation of Indians and with input from the Indian community has developed "INDIAN ACT EXEMPTION DETAILED GUIDELINES". These guidelines were released on December 15, 1993. A copy of these guidelines was attached to a letter sent by the Taxation Programs Branch to all District Offices, Processing Centres and the International Tax Office on December 20, 1993. The guidelines identify four types of situations to which the exemption will apply. Guideline 1 and 3 are summarized as follows:

1.Where the duties are performed on a reserve.

3.Where the duties are performed off reserve but the Indian lives on a reserve and the employer is resident on a reserve.

The term "employer is resident on a reserve" means the reserve is the place where the central management and control over the employer organization is actually located. The central management and control of an organization is normally considered to be exercised by the group that performs the function of a Board of Directors of the organization. However, it may be that the real management and control of an organization is exercised by some other person or group. Generally, the management and control is exercised at the principal place of business but it is recognized that this function may be legitimately exercised in a place other than the principal administrative office of the organization. It is a question of fact where the central management and control is exercised. This determination would depend on a complete review of all the facts and other relevant information concerning a particular situation. However, in a situation where the employer is a self-employed individual, the location of the permanent establishment of the business is a factor that must also be considered in determining the residence of the employer. In determining the location of the permanent establishment of a business, the factors to consider are:

-the location where the business activities are carried out, which includes where the 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.

It was also stated that as these guidelines were only just recently released, the Government will be extending the transition period to December 31, 1994, to allow those who may be negatively affected sufficient time to become aware of the implications of the guidelines and to rearrange their affairs if necessary. This extended transition period will only apply to arrangements already in place on December 31, 1993. For example prior to the Williams decision, if the employer was resident on a reserve, then employment income was exempt. This fact alone will be sufficient to exempt income from taxation only until the end of 1994.

Since the taxpayer does not work on a reserve or live on a reserve, it is unlikely any of his employment income would fall under either of the above noted guidelines, therefore, he will be taxable for the 1995 and subsequent years since their are no other factors connecting his income to a reserve other than the residence of the gas station owner. Whether the employer is presently resident on a reserve for the purposes of the transitional relief is a question of fact which would have to be resolved by the District Office.

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