4 August 1994 External T.I. 9417575 - INDIANS - INCOME EARNED ABROAD

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 abroad is taxable?

Position TAKEN:

Question of fact.

Reasons FOR POSITION TAKEN:

Where the employment duties of an Indian are performed entirely off a reserve, the employment income earned is tax-exempt only if both the employer is resident on a reserve and the Indian lives on a reserve. The question whether an Indian working abroad continues to live on a reserve is a question of fact, however, if the period of absence from the reserve exceeds three months, the employment income earned by the Indian during that period will be taxable.

5-941757
XXXXXXXXXXC. Chouinard

Attention: XXXXXXXXXX

August 4, 1994

Dear Sir:

Re: Taxation of Employment Income Earned by Status Indians

We are writing in response to your letter of July 7, 1994, wherein you requested our comments regarding the tax status of employment income earned abroad by Status Indians.

You describe the following situation: the XXXXXXXXXX a non-profit organization that functions as a temporary placement service, employs Status Indians. The Agency is located on the XXXXXXXXXX Reserve. A corporation that operates abroad has approached the Agency with a view to retaining the services of some of the Agency's employees.

You ask whether the employment income that would be earned abroad by these employees would be tax-exempt.

Our Comments

Following the Supreme Court of Canada decision in the Williams case, (92 DTC 6320), the Department developed guidelines (a copy of which is enclosed) 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 an Indian would be performed entirely off a reserve, the employment income earned would be tax-exempt only if both the employer was resident on a reserve and the Indian lived on a reserve, except if 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 Department considers that an Indian lives on a reserve if the Indian lives on the reserve in a domestic establishment which is his or her principal place of residence and the centre of his or her daily routine. However, the fact that an Indian is absent from a reserve for short periods of time because of either the type of employment duties being performed, the distance between the reserve and the location of those duties, or both, does not necessarily mean that the Indian has taken up residence off the reserve. It is a question of fact whether, in those circumstances, the Indian continues to live on a reserve. In this respect, we refer you to Interpretation Bulletin IT-221R2, entitled "Determination of an Individual's Residence Status", a copy of which is enclosed. We caution, however, that, the longer the period of absence from the reserve, the more likely it is that the employment income earned by an Indian during the period of absence will be taxable.

In addition, if one of the main purposes for the employment relationship is to establish a connecting factor between the employment income earned by an Indian and the reserve, the employment income earned by the Indian will be taxable.

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