30 December 1994 External T.I. 9430405 - STATUS INDIAN

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.

		943040
XXXXXXXXXX	B. Kerr

Attention: XXXXXXXXXX

December 30, 1994

Dear Sirs:

This is in response to your letter of November 23, 1994, wherein you requested our views on whether the status Indian employees of your client would be exempt from income tax under the "Indian Act Exemption for Employment Income Guidelines" issued by the Department on June 29, 1994.

The employees of your client work at a mill at a location off reserve. Some of the employees live on reserve and some live off. In your view, the employer, should be considered to be resident on a reserve as the central management and control of the employer as a corporation is exercised on the reserve by its board of directors.

Our Comments

Since the employment duties are not performed on a reserve, Guidelines 1 and 3 will not apply to exempt the employment income of the employees.

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. The facts as outlined in your letter leaves some doubt as to the resolution of this question of employer residence. For example, you have stated that the administration of the operation has been contracted out to another company specializing in the particular industry and that management and control of the operation takes place at the off reserve location. On the other hand, you state that the board of directors, which meet on reserves quarterly, control the corporate and business affairs of the corporation. 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. In our view, Guideline 4 would not apply to exempt the employees of your client who live off reserve as the employer does not satisfy element b) above nor do the employment duties satisfy element c) above.

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