26 July 1995 External T.I. 9513935 - GUIDELINE 4 AND DEFINITION OF (INDIAN) RESERVE

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 the employment income of status Indian employees of two proposed structures would be exempt from tax based on Guideline 4 of the Indian Act Exemption for Employment Income Guidelines.

Whether land obtained by an Indian band pursuant to a land settlement claim would be a reserve.

Position TAKEN:

Insufficient information provided in order to determine whether the lands are reserve lands or whether Guideline 4 applies. We therefore provided general comments on the meaning of "reserve" and on Guideline 4.

Reasons FOR POSITION TAKEN:

Not applicable

									5-951393
XXXXXXXXXX							M. Azzi

Attention: XXXXXXXXXX

July 26, 1995

Dear Sir:

Re: Status Indians

This is in reply to your letter of February 17, 1995 requesting our views concerning the income tax exemption for the employment income of certain status Indians. We apologize for the delay in responding to your request.

We understand that you represent a local Indian band and are considering proposed structures to hold land and other assets pursuant to a land settlement claim. The two structures under review are:

1.The land and other assets are to be held in trust for the band under a trust agreement, or

2.The land and other assets are to be held in a charitable corporation, incorporated without share capital, that will have a board of directors and membership of which the majority of both will consist of members of the band.

It is the intention of the band to eventually use the land for native educational purposes by constructing educational facilities on the land. In your view, the employment income earned by status Indians, while working either at the future educational facility or as part of its construction, will be exempt from income tax regardless of whether the land and other assets are held in trust or in a charitable corporation, based on your understanding of Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"). You also requested our views as to whether the lands held by the charitable corporation would be considered reserve lands for income tax purposes.

Our Comments

You have not provided sufficient information in your letter in order to determine whether the above-noted lands are reserve lands or whether Guideline 4 applies. However, we can offer the following general comments.

According to subsection 2(1) of the Indian Act, "reserve" means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band, and for purposes of section 87 of the Indian Act, includes designated lands. "Designated lands" is defined in subsection 2(1) of the Indian Act as "a tract of land or any interest therein, the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests." The term "on a reserve", as used in the Guidelines, is defined (on page 10 of the Guidelines) to mean "on a reserve as defined for purposes of the Indian Act, including any settlements deemed to be reserves for purposes of the Indian Settlements Remission Order, and any other areas given similar treatment under federal legislation (for example, Category I-A lands under the Cree-Naskapi (of Quebec) Act)." In order for the Department to establish that the lands referred to in your letter are reserves, we would require documentary evidence to that effect.

In your letter, you quote a guideline which is similar to the December 1993 draft version of Guideline 4; however, Guideline 4 in final form was modified. For your information, we have enclosed a copy of the Guidelines which were released in final form on June 29, 1994. Guideline 4 requires a) that 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; and c) 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.

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 Tax Services Office.

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 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.

One of the requirements of Guideline 4 is that an organization must be dedicated exclusively to the development of Indians "who for the most part live on reserves." That is, 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 exclusively to the development of Indians on reserves, and the work may require the Indian to live away from the 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 laid out in Guideline 4, to recognize a connection since the employee is working for the benefit of Indians 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.

Should you wish to submit further information or would like further clarification on the application of any of the Guidelines to the employment income of the employees of the proposed structures described above, 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
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch