9 May 1995 External T.I. 9506735 - STATUS INDIAN BUSINESS INCOME EXEMPT

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:

Guidance on Status Indian business income

Position TAKEN:

Question of fact, cannot be conclusive at this time. Connecting factors specific to an individual and the business will have to be examined.

Reasons FOR POSITION TAKEN:

Guidance provided in Williams.

									950673
XXXXXXXXXX							J. Brooks

May 9, 1995

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

We are writing in reply to your letter of March 10, 1995, in which you raised a question on behalf of XXXXXXXXXX, one of your constituents.

You stated that XXXXXXXXXX is a status Indian who plans to reside on a reserve and open an unincorporated business. We understand that the business will be conducted on the reserve although some of her clients will live off reserve. XXXXXXXXXX would like to know the income tax consequences.

Our comments

By virtue of section 87 of the Indian Act the following property is exempt from taxation, namely:

a)the interest of an Indian or a band in a reserve or surrendered lands; and

b)the personal property or an Indian or band situated on a reserve.

No Indian or band is subject to taxation in respect or ownership, occupation, possession or use of such property. Income is considered to be personal property, therefore, what must be determined is whether the business income is situated on a reserve.

The decision of the Supreme Court of Canada in Williams 92 DTC 6320, (1992) 1 CTC 225, has required the Department to review its interpretation of the scope of the exemption from income taxation provided under the Indian Act. This review does not involve a change in law or in departmental policy, but rather a re-examination of the existing law in light of new jurisprudence. Such an exercise is necessary after every significant case.

One general direction provided by the Supreme Court in Williams was that "an overly rigid test which identified one or two factors an having controlling force...would be open to manipulation and abuse." The approach adopted in Williams requires an examination of all factors connecting income to a reserve to determine if the income is located on the reserve. In the case of business income, the connecting factors specific to an individual and the business will have to be examined. It is not sufficient to simply determine the location of the head office of the business. Of course where all potential factors indicate a reserve location then the business income will be subject to exemption. Regarding your constituent's business income, we cannot provide any more conclusive comments at this time.

We have included a copy of the 1994 Business and Professional Income Tax Guide which provides general assistance with respect to the calculation of business income.

Yours truly,

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