28 December 1994 Income Tax Severed Letter 9431475 - XXXXXXXXXX Indians — employees

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.

943147
XXXXXXXXXX J.D. Brooks

Attention: XXXXXXXXXX

December 28, 1994

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter of November 24, 1994 in which you queried whether your leased employees would be exempt from taxation under Guideline 4 of the Department's Indian Act Exemption for Employment Income Guidelines. You stated that your organizations, XXXXXXXXXX have a non-profit mandate. You also referred to a letter dated June 20, 1991 from us wherein we stated that, if XXXXXXXXXX were considered to be resident on a reserve, all of their employees would be considered to have received their salary or wages from an employer resident on a reserve regardless of where their duties are performed.

Our comments

Guideline 4 will apply to exempt all the employment income of an Indian, regardless of where their employment duties are performed, where a) the employer is resident on the reserve; b) the employer is an Indian band, tribal council or an 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; and c) 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.

The meaning of the term "employer is resident on a reserve" used in the Guidelines is that the reserve is the place where the central management and control over the employer organization is actually located. Reflected as a fact provided by you in our June 20, 1991 letter issued to you, was the statement that XXXXXXXXXX are both corporate employers and both exercise control and management from their place of business on the Reserve." It is a question of fact where central management and control is exercised, however, should control and management of XXXXXXXXXX still be exercised on the Reserve, then they would be considered to satisfy this element of Guideline 4.

Under Guideline 4 it is also necessary that the employer be a band which has a reserve or a tribal council representing bands which have reserves, or an Indian organization which is controlled by such a band or tribal council. In addition, where the employer is an organization controlled by a band or tribal council, it must be dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves. We have not been provided with any facts as to who controls XXXXXXXXXX nor as to what the organization's non-profit mandates are dedicated to, so we cannot comment conclusively on whether XXXXXXXXXX satisfy this element.

The last element in Guideline 4 is that the duties of employment must be 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. In your view, all the activities of XXXXXXXXXX must be non- commercial because they have non-profit mandates. However, in our view, where commercial activities are undertaken by an organization, the fact that the organization is operated on a not-for-profit basis does not, in and by itself, render these activities non-commercial. Each activity of an organization would need to be considered on its own merits as would the employment duties of a particular employee. In addition, we have not been provided with information upon which to conclude that the activities are carried on exclusively for the benefit of Indians who for the most part live on reserves.

Finally, the Guidelines provide that the exemption will not apply in a situation where it can reasonably be considered that one of the main reasons for the existence of an employment relationship is to establish a connecting factor to a reserve. An example of this is an on-reserve employment agency, which contracts the services of Indians to their real off-reserve employers only to create a connecting factor to a reserve. These arrangements developed as a result of a previous Supreme Court decision taken in 1983 and employees, who are presently exempt because of these arrangements, had been taxable in the past. The Williams [[1992] 1 C.T.C. 225] decision clearly supports the application of the exemption in a manner that does not allow its manipulation and abuse. The use of the type of employment agency described above is an example of the kind of situation that does not meet the test for exemption and, in our view, based on the available information, your leased employees should be treated similarly to the employment agency employees. Should you wish to have this issue reconsidered, we would need to know how your leased employees received their off-reserve employment, the length of time they worked off-reserve, the number of employers each employee worked for, the length of time they worked on and off-reserve, whether or not they worked for the off- reserve employer prior to having their services contracted out by you, and anything else that you may feel appropriate to justify why their income should be considered as located on-reserve.

We trust that these comments will be of assistance.

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