2 June 1994 Ministerial Letter 9410008 - STATUS INDIAN - EMPLOYMENT 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.

ADM'S OFFICE (3) ADM 940425

RETURN TO RULINGS, ROOM 303, MET. BLDG.

AUTHOR
SUBJECT OR CORPORATE FILE

June 2, 1994

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing to you in response to your letter of April 12, 1994, wherein you suggested that Guideline 4 of the draft "INDIAN ACT EXEMPTION FOR EMPLOYMENT INCOME DETAILED GUIDELINES" (the "Guidelines") be amended to reflect the position set out in your letter concerning the residence of an employer.

You have identified a specific taxpayer in your letter. The Department is prohibited from providing any taxpayer information relating to a taxpayer to any other person unless the taxpayer consents in accordance with subsection 241(5) of the Income Tax Act. However, we can provide general comments concerning the Guidelines.

In your view, the place where the Board of Directors meet should not be given the most weight when analysing the connecting factors in the determination of the "residence" of the employer. You have suggested that the composition of the Board would be a far more appropriate criterion than the place where the Board meets. You have suggested that the Guideline should not be emphasizing where the highest authority of an organization meets, but by whom it is exercised.

As you know, when the draft Guidelines were released, I invited comments concerning them until March 31, 1994. We are presently reviewing the submissions received. However, I offer the following comments based on the draft Guidelines.

Draft Guideline 4 requires an organization to meet various criteria in order for its employees to be tax exempt. As indicated in the definitions on page 11 of the Guidelines, the Department considers that an employer is resident on a reserve if the reserve is the place where the central management and control over the business 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. This task would ultimately be undertaken by your District Office and I would suggest that you contact Mr. J. Purda, Director, Winnipeg District Office for his assistance at the following address:

325 Broadway Avenue
Winnipeg, Manitoba
R3C 4T4

The Department's position is based on the decision of the House of Lords in the case of De Beers Consolidated Mines Ltd. v. Howe (1906) A.C. 455. This case dealt with the determination of the residence of a corporation where it was decided that the test of residence is not where it is registered, but where it really keeps house and does business. Lord Lorebrun stated at page 458 "...A company resides where its real business is carried on...and the real business is carried on where the central management and control actually abides...This is a pure question of fact to be determined...upon a scrutiny of the course of business and trading".

Thank you for your comments concerning draft Guideline 4. Upon considering the representations that we have received, including yours, the Guidelines will be finalized, and at that time, we will send you a copy of the final Guidelines.

		Yours sincerely,

		Denis Lefebvre
		Assistant Deputy Minister
		Legislative & Intergovernmental
		  Affairs Branch

c.c. Mr. J. Purda

Director
Winnipeg District Office

Bill Kerr
957-2139
May 25, 1994
941000