11 August 1994 Ministerial Letter 9417078 - INDIANS - EMPLOYMENT INCOME GUIDELINES

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:

Suggestions re Indian employment income guidelines -
The representative's organization seems to have been misunderstood;
Residency of an Indian should not be a prerequisite;

The Remission Order is being applied arbitrarily.

Position TAKEN:

Indians are free to structure their affairs to remain within the reserve system;
Residency is not required under all the guidelines;

The Remission Order states its effectiveness.

Reasons FOR POSITION TAKEN:

ADM'S OFFICE (3) ADM#94-0332

RETURN TO RULINGS, ROOM 303, MET. BLDG.

AUTHOR
SUBJECT OR CORPORATE FILE

August 11, 1994

XXXXXXXXXX

Dear XXXXXXXXXX:

I apologize for the delay in replying to your letter of March 1, 1994, in which you made representations on behalf of XXXXXXXXXX concerning the draft guidelines on the application of the Indian Act tax exemption for employment income. Unfortunately, I was not in a position to reply to you until we had an opportunity to review all the feedback we received as a result of issuing these guidelines.

We have now reviewed that feedback and issued the final version of the guidelines on June 29, 1994, a copy of which was sent to your firm.

In your letter you state that you feel that there may be some misunderstanding on the part of the government of Canada as to XXXXXXXXXX organization and purposes. You also focused on provisions in guidelines 2 and 4 which refer to Indians living on reserve.

Guideline 2 exempts from income tax the employment income of an Indian from an employment where the employer is resident on a reserve and the Indian lives on a reserve. You noted that the majority of XXXXXXXXXX employees live on a reserve or have strong connections to their reserves, and expressed the view that it would be unfair to deny an Indian access to the exemption solely because the Indian does not live on a reserve.

Section 87 of the Indian Act exempts from taxation the property of an Indian on a reserve. Although there may be valid reasons for Indians not living on reserve, it is only the property of an Indian situated on a reserve which is exempt from taxation. I would also point out that the residency of the Indian is not the sole criterion in determining whether an Indian is exempt from income tax. Guideline 2 also requires the employer to be resident on a reserve, while guideline 4 requires that the qualifying activities of employees of qualifying organizations be carried on exclusively for the benefit of Indians who for the most part live on reserves although the employee need not live on reserve. In addition, guidelines 1 and 3 and the proration rule do not require the employee to live on reserve.

You stated that Indians should be free to structure their affairs to remain within the reserve system. You raised the example of Mr. G in the draft guidelines, which is Mr. K in the final guidelines, and pointed out that, in your view, XXXXXXXXXX is not the type of employment agency discussed in the example. We agree that Indians should be able to structure their affairs to remain within the reserve system, provided that the structuring does not involve artificial arrangements. One would have to examine the facts of a particular case to determine whether the arrangement is artificial. The fact that an employee works for an agency would not be sufficient in itself to enable one to draw a conclusion. The artificiality in the example of Mr. K is that he is holding out the appearance of having remained within the reserve system when in fact his real employer is not resident on a reserve.

Upon being advised that the Indian Income Tax Remission Order is not applicable to new employees joining your client's organization or any similar organization in 1994, you stated that this is an arbitrary application of the remission order. I must point out that it is the remission order itself which states that it will apply "where the office or employment was held continuously since before 1994." The Department is correctly applying it. The intent of the 1994 amendment to the remission order was to continue the relief provided for a longer period so as to facilitate any desired restructuring. It was not its intent to extend the relief to persons who did not previously qualify.

I trust that I have explained the Department's position and thank you for your comments and interest in this matter.

			Yours sincerely,

		Denis Lefebvre
		Interim Assistant Deputy Minister
		Policy and Legislation Branch

J.D. Brooks
957-2103
July 12, 1994
941707