18 July 1995 Internal T.I. 9517596 - INDIANS -- EMPLOYEES -- GUIDELINE 4

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 Indian employees of the XXXXXXXXXX qualify for exemption under the Indian Act on the basis of Guideline 4.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

The XXXXXXXXXX is not a qualifying employer under Guideline 4.

		July 18, 1995
	André Bissonnette		HEADQUARTERS
	Source Deductions Division	Income Tax Rulings 		and
	District Office and Taxation Centre	Interpretations
	  Support Services			Directorate
J. D. Brooks
	Attention:  R. Cousineau	957-8953

			951759

XXXXXXXXXX

This is in reply to your memorandum of June 22, 1995 in which you requested us to consider a submission by the

XXXXXXXXXX

states its view that the Indian Act, even as construed in the Guidelines, operates to exempt from tax the employment income of its status Indian employees.

Although, as you are aware, we considered a request XXXXXXXXXX to determine how the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") would apply to their employees, we have reviewed the XXXXXXXXXX and the accompanying documents you forwarded to us, and make the following comments.

According to paragraph 87(1)(b) of the Indian Act, it is the personal property of an Indian situated on a reserve that is exempt from taxation. While the devotion of the XXXXXXXXXX and other similar organizations to Aboriginal people is commendable, this devotion, in and by itself, does not establish a connection of its employees' employment income to a reserve.

The XXXXXXXXXX has described Guideline 4 as being vague and inconsistent. We disagree with this view. Considerable effort went into the drafting and revision of this Guideline to ensure that its intent was consistent with the words and that the words were clear. The problem facing the XXXXXXXXXX is that it clearly does not fit Guideline 4, as demonstrated below.

Guideline 4 requires the employer to be resident on reserve, and this term is defined in order to add clarity to the Guidelines. Although this point does not seem to have been addressed by the XXXXXXXXXX different facts suggest that the XXXXXXXXXX is resident in XXXXXXXXXX not on a reserve.

Where the employer is an organization, Guideline 4 requires the organization to be controlled by one or more bands that have reserves or by a tribal council representing one or more such bands. The XXXXXXXXXX states that the Board of Directors has control of the general direction of the XXXXXXXXXX. Of the current XXXXXXXXXX members, only XXXXXXXXXX are status Indians. There does not appear to be control of the XXXXXXXXXX by bands or a tribal council.

Another requirement under Guideline 4 that must be met where the employer is an organization, is that the organization must be dedicated exclusively to the social, cultural, educational or economic development of Indians who for the most part live on reserves. The XXXXXXXXXX states that over XXXXXXXXXX% of its clientele are status Indians, so up to XXXXXXXXXX% are not status Indians. Furthermore, the XXXXXXXXXX states that it serves Aboriginal peoples living in XXXXXXXXXX and that the vast majority of its clients live off-reserve. Thus, this requirement of Guideline 4 is not met.

In explaining our views to the XXXXXXXXXX it may be worthwhile to point out that we are not questioning the XXXXXXXXXX status as a non-profit organization. Also, we are not questioning the value of the service that the XXXXXXXXXX provides to Aboriginal people who live in XXXXXXXXXX or other cities. The point that needs to be stressed is that, in general, employees of non-profit organizations are taxed on their employment income. However, where a non-profit organization is dedicated exclusively to the social, cultural, educational or economic development of Indians who for the most part live on reserves, its employees who are status Indians may be able to obtain a tax exemption on their employment income, provided that the other requirements of Guideline 4 are met; that is, the employer organization must be resident on reserve, the organization must be controlled by a band or bands that have reserves or a tribal council of such bands, and the employee's duties must be in connection with the organization's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves.

You could point out that Guideline 4 was not designed to include employers who are devoted to serving Indians who live off reserve.

With regards to the charge by the XXXXXXXXXX that Guideline 4 is vague and inconsistent, you could demonstrate to them how this Guideline was clarified from the draft version issued in December 1993 to the final version issued in June 1994. These two versions are attached in an appendix for your ease of reference.

The Guidelines state the general policy as to which status Indian employees are considered by the Department to be exempt from taxation on their employment income. In our view, fact patterns similar to that of the XXXXXXXXXX would not be considered to be unusual or exceptional circumstances.

Roy Shultis
Acting Director General
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch