26 September 1995 External T.I. 9503915 - 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.

Principal Issues:

Whether Guideline 4 would apply to a corporation that represents Indian bands.

Position TAKEN:

Guideline 4 may not apply.

Reasons FOR POSITION TAKEN:

Unable to determine from the information submitted whether the "b)" requirement of guideline 4 has been met, i.e., Indian organization controlled by one or more bands or tribal councils. Also there is some doubt as to requirement, "... activities carried on exclusively for the benefit of indians who for the most part live on reserve." versus indians who have little or no connection with the reserve.

									950391
XXXXXXXXXX							A.M. Brake

Attention: XXXXXXXXXX

September 26, 1995

Dear Sirs:

Re: Indian Act Exemption for Employment Income Detailed Guideline #4

We are writing in reply to your letter of February 6, 1995, wherein you requested an advance income tax ruling on behalf of the XXXXXXXXXX Specifically, you asked us to rule that the employment income earned by Indians employed with the Board would be exempt from taxation pursuant to Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"). We apologize for the delay in replying.

As indicated in Information Circular 70-6R2, a copy of which is enclosed, the Department does not generally provide an advance income tax ruling where satisfactory evidence is lacking that a proposed transaction is being seriously contemplated. As your ruling request does not involve a proposed transaction, we cannot give you an advance income tax ruling. Instead, we are providing you with our general comments.

Our Comments

In the situation you describe, the employer, XXXXXXXXXX is a non-profit corporation whose head office is situated on the XXXXXXXXXX Indian Reserve.

XXXXXXXXXX

Guideline 4 requires that a) the employer be resident on a reserve; b) the employer be 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; and c) the duties of employment 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. These elements must all be satisfied in order for Guideline 4 to apply to exempt the income of an employee.

With respect to the residence of the employer, the Department considers that an employer is resident on a reserve if the reserve is the place where the central management and control over the employer organization is actually located. It is a question of fact where the central management and control is exercised. Although management and control is generally exercised at the principal place of business, it may be exercised in a place other than the principal administrative office of the organization. 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. 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 the board of directors meetings and resolutions or by-laws are passed thereat would be required to conclusively resolve this question of fact and this would best be resolved by the XXXXXXXXXX Tax Services Office.

You state that XXXXXXXXXX is clearly an Indian organization controlled by a number of bands with reserves and Tribal Councils representing such bands. Since there are XXXXXXXXXX directors eligible to vote, it would have to be demonstrated that at least XXXXXXXXXX of the votes are held by bands or tribal councils in order to meet the control test required in b) of Guideline 4. We are of the view that possibly as many as XXXXXXXXXX members of the board of directors might not be considered to qualify as being held by "such bands or tribal councils". In the absence of documentation to the contrary, XXXXXXXXXX would not meet this test.

With regard to an organization being dedicated "exclusively" to the social, cultural, educational, or economic development of Indians "who for the most part live on reserves", the intention of the word "exclusively" is to restrict Guideline 4 to those organizations which are dedicated only to the social, cultural, educational or economic development of Indians living on reserve. It would not be sufficient to have these as being only part of an organization's objectives. Guideline 4 is a generous interpretation of the direction provided by the Courts in Williams (92 DTC 6320), (1992) 1 CTC 225), so it is appropriate to restrict its application to situations that fit squarely within it. In referring to "who for the most part live on reserves", it is intended that almost all of the Indians in the population served by the organization must live on reserve. Guideline 4 recognizes that there will be situations where an Indian works for an organization which is dedicated to the development of Indians on reserves, and the work may require the Indian to live away from reserve. Although the employee's residence would not be a factor which connects the Indian's employment to the reserve, it is appropriate, under the circumstances set out in Guideline 4, to recognize a connection since the employee is working for the benefit of Indians who for the most part live on reserve. However, if the population served by the organization was not comprised almost entirely of Indians who live on reserve, this latter connection would not exist. XXXXXXXXXX denotes the geographical area served and, as described, the recipients of the services would not satisfy the "who for the most part live on the reserve" element of Guideline 4. However, you have noted that in fact a large portion of the recipients do live on reserve. This situation would require an annual factual examination to determine if this element of Guideline 4 has been satisfied.

The information submitted does not conclusively support that either of the three requirements have been satisfied. While it may be determined retrospectively that XXXXXXXXXX is resident on reserve, it would, also, have to be demonstrated that the b) and c) requirements have been met in order for XXXXXXXXXX employees to qualify for exemption under guideline 4.

We trust our comments will be of assistance to you.

Yours truly,

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