13 January 1995 External T.I. 9429325 - INDIANS

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.

		942932
XXXXXXXXXX		B. Kerr

Attention: XXXXXXXXXX

January 13, 1995

Dear Madam:

Re: Income Tax Exemption for Indians

This is in response to your letters of November 9, 1994, and January 6, 1995, wherein you requested our views on whether your organization would be exempt from income tax.

We understand that the organization is a corporation that was established by the XXXXXXXXXX to provide cultural educational services to XXXXXXXXXX communities and that the Head Office is the XXXXXXXXXX Reserve,
XXXXXXXXXX

The Board of Directors may meet at the head office or at any place within XXXXXXXXXX served by the corporation. Every director shall be a member of the corporation and a XXXXXXXXXX member appointed to the board by his own tribal council.

Our Comments

You have not provided sufficient information in your letter for us to determine whether your organization or any of the status Indian employees of your organization would be exempt from income tax. However, we can provide the following general comments.

Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve. The term "Indian" is defined in the Indian Act to be a person who is registered or entitled to be registered as an Indian under that Act. As stated in Interpretation Bulletin IT-62 entitled "Indians", a corporation cannot meet the definition of "Indian" in the Indian Act and its income is not exempted from tax. Accordingly, your organization would not be exempt on its income under the Indian Act. However, provided that it is a registered charity it would be exempt from Part I tax by virtue of paragraph 149(1)(e) of the Income Tax Act.

With a view to assisting the Indian community, the Department has developed "Indian Act Exemption for Employment Income Guidelines" (the "Guidelines"), that describe the employment situations covered by the Indian Act. The Guidelines were released in final form on June 29, 1994, a copy of which was previously sent to you.

All employment income earned by a status Indian on a reserve is exempt. Where a portion of the employment income is earned on reserve Guideline 1 or 3 may apply, depending on the circumstances, to determine whether the off reserve portion is also exempt. Where all of the employment income is earned off reserve, Guideline 2 or 4 may apply, depending on the circumstances, to determine whether the income is exempt.

Guideline 1 would apply to exempt all of the income of an Indian if at least 90% of the employment duties are performed on a reserve. When less than 90% of the duties are performed on a reserve and none of the other guidelines apply, only the portion that is performed on a reserve is exempt. Guideline 3 would apply to exempt all of the income of an Indian if more than 50% of the employment duties are performed on a reserve and the employer is resident on a reserve or the Indian lives on a reserve. Since you have not indicated whether any portion of the employment duties are performed on a reserve or whether any Indian employee lives on a reserve, we cannot determine if guidelines 1 or 3 would apply.

Guideline 2 could apply to exempt the employment income of employees who live on reserve provided that the employer is in fact resident on a reserve. However, the determination of the residence of an employer is a question of fact. As stated on page 10 of the Guidelines the term "employer is resident on a reserve" means that 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 usually 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, 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. 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 generally be considered to satisfy the definition where management and control over the organization is legitimately exercised during those meetings. A review of all of the facts surrounding a situation including the minutes of board of directors meetings and resolutions or by-laws passed thereat would be required to conclusively resolve this question of fact and this would be best resolved by a District Office. However, in our view, if in fact, the board of directors meet regularly on a reserve at which decisions are made which direct an organization's operations, such an organization would generally be considered resident on a reserve such that its employees living on reserve would be exempt from taxation on their employment income under Guideline 2.

In order for the exemption to apply to status Indian employees that do not reside on a reserve, Guideline 4 would have to apply. Briefly, Guideline 4 requires that a) the employer is resident on a reserve; b) that the employer is an Indian Band which has a reserve, or a tribal council representing one or more Indian Bands which have reserves, or an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves; c) and that the duties of the employment are in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. These elements must all be satisfied in order for Guideline 4 to apply to exempt the income of a particular employee. From the limited information provided, we cannot conclusively determine whether any of these elements have been satisfied.

Should you wish to submit further information or would like further clarification on the application of the Guidelines to the employment income of the employees of your organization, we suggest that you contact the XXXXXXXXXX Tax Services Office for their assistance at the following address:

XXXXXXXXXX

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch