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 certain Indian employees of XXXXXXXXXX (the "Employer") is pensionable for Canada Pension Plan (CPP) purposes.
Whether the "Honoraria" paid by the Employer to the Chiefs, who are members of the Employer, for attending certain meetings, is pensionable.
Position TAKEN:
In the absence of specific elections under the CPP Act, if an Indian's income from an employment is exempt for purposes of the Income Tax Act, the employment does not constitute "pensionable employment" for purposes of the CPP Act. Reference should therefore be made to the Indian Act Exemption for Employment Income Guidelines (the "Guidelines").
As the above Indian employees perform their employment duties almost entirely off reserve and they live off reserve, none of Guidelines 1, 2 or 3 can apply to exempt their employment income from taxation. However, the Proration Rule to Guideline 1 may apply to exempt the portion of their employment income that relates to employment duties performed on a reserve. As regards to Guideline 4, we have not been provided with sufficient information to determine whether it can apply.
The "Honoraria" paid to the members for attending meetings is income from an office and should therefore fall under one of the Guidelines in order to be exempt (see also ¶3 of IT-377R). We have not, however, been provided with sufficient information in order to establish whether any of the Guidelines could apply to exempt such "Honoraria".
Reasons FOR POSITION TAKEN:
See above.
February 13, 1997
P. M. Paquette HEADQUARTERS
CPP/UI Eligibility M. Azzi
and Systems Division 957-8953
Attention: L. Mackay
7-952535
XXXXXXXXXX
This is in reply to your memo of September 22, 1995 regarding a referral from the XXXXXXXXXX Tax Services Office. The issue is whether the employment income of certain Indian employees of XXXXXXXXXX (the "Employer") is pensionable for Canada Pension Plan (CPP) purposes. We apologize for the delay in responding to your request.
Facts
Our understanding of the facts is as follows:
1. The employees in question live off reserve in either XXXXXXXXXX.
2. The employment duties of these employees were performed almost entirely off reserve in XXXXXXXXXX. The employees may have occasionally performed some services on reserve.
3. The Employer was incorporated under the Canada Corporations Act in 1990. The Employer's head office is located on reserve at XXXXXXXXXX, while its operating office is in XXXXXXXXXX.
4. The annual or other general meetings of the members of the Employer are not restricted by by-law as to a location, except that they must be held in Canada.
5. The Employer paid salaries or wages to the employees. In addition, the Employer paid "Honoraria" to the Chiefs, who are members of the Employer, for attending certain meetings.
By virtue of paragraph 6(2)(j.1) of the CPP Act, an Indian earning employment income that is exempt for purposes of the Income Tax Act (the "Act") does not have "pensionable employment". Pensionable employment is defined under section 6 of the CPP Act as employment in Canada that is not excepted employment. Section 8 of the CPP Act states that only employees employed in pensionable employment are required to make contributions based on their "contributory salary". Section 7 of the CPP Act provides regulations for including in pensionable employment certain excepted employment, including an Indian's employment "excepted" under paragraph 6(2)(j.1), but the two exceptions pertaining to Indians require an election by either the employer or the employee before their employment can be included in "pensionable employment". Where an election is made, subsection 12(2.1) of the CPP Act includes in computing the amount of contributory salary of an Indian, the amount of income from employment that "would otherwise be excepted pursuant to paragraph 6(2)(j.1)" of the CPP Act.
Thus, in the absence of the above-noted elections, an Indian's employment, the income from which is exempt for purposes of the Act, does not constitute "pensionable employment". In determining whether income is exempt from taxation, reference should be made to paragraph 81(1)(a) of the Act and section 87 of the Indian Act, which provide a tax exemption for an Indian's personal property situated on a reserve. The Courts have determined that employment income is personal property. Therefore, what must be determined is whether the employment income is situated on a reserve. The Supreme Court of Canada in Williams (92 DTC 6320) has directed that all factors connecting income to a reserve must be examined to determine if the income is located on the reserve.
Based on the guidance provided in Williams and after receiving representations from interested Indian groups and individuals, the Department identified a number of connecting factors that can be used to determine whether employment income is situated on a reserve. With a view to assisting the Indian community, the Department developed the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"), incorporating the various connecting factors that describe the employment situations covered by the Indian Act. We have enclosed a copy of the Guidelines for your information.
As the above described Indian employees perform their employment duties almost entirely off reserve and they live off reserve, none of Guidelines 1, 2 or 3 can apply to exempt their employment income from taxation. However, the Proration Rule to Guideline 1 may apply to exempt the portion of their employment income that relates to employment duties performed on a reserve. In this respect, it should be noted that, in calculating the time spent performing employment duties on a reserve, travel time to and from the reserve is not included.
As regards to Guideline 4, please note that it 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. Furthermore, if Guideline 4 applies with respect to an Indian's employment, the Indian's income from the employment will be exempt regardless of whether the Indian performs the duties of the employment on or off reserve.
From the information submitted, we cannot determine whether all of the elements of Guideline 4 have been satisfied and, consequently, whether this Guideline will apply to the employees of the Employer. Nonetheless, we can offer the following general comments which may be of assistance.
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. Nonetheless, it should be noted that satisfaction of the requirement that the employer be resident on a reserve is always of some concern where the head office of an organization is located on a reserve but its main place of business is located off reserve. 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. Nevertheless, in our view, in a situation where the board of directors meet on reserve, albeit different reserves, at which decisions are made which direct an organization's operations, such an organization would generally be considered resident on reserve.
As the Employer does not appear to be an Indian band or tribal council, in order for Guideline 4 to apply, the Employer must be an Indian organization controlled by one or more Indian bands which have reserves or tribal councils representing one or more Indian bands which have reserves. The concept of control in Guideline 4 is the kind that exists where there is power to command and direct. Where a band or tribal council can replace the directors of an organization, the band or tribal council could be said to control the organization. Based on the information provided, we cannot determine whether this element of Guideline 4 has been met with respect to the Employer.
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, so it is appropriate to restrict its application to situations that fit squarely within it. We have not been provided with sufficient details with respect to the Employer's objects or mandate, as well as its programs, in order to determine whether this element of Guideline 4 could have been met.
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.
Furthermore, in determining whether Guideline 4 applies, the employment duties of each particular Indian employee of the Employer would have to be considered to establish if they were 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. While an organization may have a non-profit mandate, this does not necessarily mean that all of its activities are non-commercial. As a general rule, a commercial activity entails the provision of services or the creation of a product to be provided to others for compensation. On the other hand, an example of a non-commercial activity would be a governmental or quasi-governmental activity.
Finally, please note that, in our view, the "Honoraria" paid to the members for attending meetings is income from an office and should therefore fall under one of the Guidelines in order to be exempt. We have not, however, been provided with sufficient information with respect to the location where the meetings were held (i.e., where the duties were performed), where the members live, and the nature and residence of the Employer, in order to establish whether any of the Guidelines could apply to exempt such "Honoraria".
We trust that these comments will be of assistance.
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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