11 November 1994 Internal T.I. 9428297 - INDIANS - 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)

RETURN TO RULINGS, ROOM 303, MET. BLDG.

AUTHOR
SUBJECT OR CORPORATE FILE

November 11, 1994

MEMORANDUM TO MR. J. PURDA

SUBJECT: INDIAN ACT EXEMPTION FOR EMPLOYMENT INCOME

I am replying to your memorandum of October 14, 1994 in which you described views expressed to you by
XXXXXXXXXX
at a meeting on September 7, 1994, concerning the Indian Act exemption for employment income.

You stated that XXXXXXXXXX and his group are adamant that the residency of the employer requirement in Guideline 4 should be subject to a very broad interpretation. In particular, in their view:

1.Band Chiefs exercise management control over Tribal Councils, Education and Economic Development authorities, Child Welfare and Social agencies, etc. As the Band Chiefs reside and work on reserves, the employer must be considered to be on the reserve. Administrative offices are situated off reserve and executive meetings are held off reserve in recognition of cost savings and the fact that required services are often not available on reserve.

2.Band Chiefs are elected by reserve residents effectively meaning reserve residents have total care and control over matters related to all Councils and Agencies, etc.

3.Organizations such as those noted can be considered resident on reserve solely on the basis they exist and function to meet the needs of individuals who reside on reserves. Essentially whom an organization and its employees work for must be considered the most important connecting factor when determining residency rather than the care and control test.

The Guidelines were developed after extensive discussion with the Indian community and consideration of representations similar to those above. We also followed the guidance provided by the Supreme Court of Canada in the Nowegijick case and also the subsequent Williams case (92 DTC 6320, (1992) 1 C.T.C. 225) that the Indian Act should be interpreted fairly and liberally, in determining whether or not there is a connection of income to a reserve. The fourth Guideline is particularly generous since it permits an Indian to obtain income tax exemption even though the Indian does not reside on a reserve and does not work on a reserve. This provision has been intentionally limited to situations where the employee's duties are in connection with the employer's non-commercial activities which are carried on for the benefit of Indians living on reserve. Furthermore, its application has been restricted to those situations where the employer is an Indian band (or an organization controlled by an Indian band) and the "employer is resident on a reserve". It is to be noted that the Indian Act provides exemption for an Indian's property on a reserve and, thus, there is the need for a connection to a reserve.

The phrase "employer is resident on a reserve" has been defined in the Guidelines for clarity. The residence of an employer is the place where the central management and control over the employer is actually located. While the central management and control is usually considered to be exercised by the group that performs the function of the board of directors, it is recognized that the management and control may be exercised by some other person or group. The location where the central management and control is exercised is a question of fact, and it may be legitimately exercised in a place other than the principal administrative office of the organization. Where an organization which would otherwise not be considered to be resident on reserve is asserting that it satisfies the definition because it holds its board of directors meetings on reserve, it should be considered to satisfy the definition where management and control over the organization is legitimately exercised during those meetings. The location of the residence of the individual board members is not a determining factor.

To reiterate, the Guidelines themselves are a fair and liberal interpretation of the Indian Act. The definition of "employer is resident on reserve" is based on jurisprudence. I do not believe that it is possible to make this definition any broader.

I trust that this reply clarifies this issue for you and will assist you in applying the Guidelines. I believe that this reply also responds to the issues set out in your October 14, 1994 memorandum to Mr. Robert D'Aurelio and should assist you in proceeding with the resultant reassessments.

Denis Lefebvre
Interim Assistant Deputy Minister
Policy and Legislation Branch

C.C. R. D'Aurelio
Director, Current Amendments

J.D. Brooks
November 3, 1994
942829