8 February 1996 Internal T.I. 9529477 - INDIANS - 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 Guideline 4 applies to exempt the employment income earned by Indians employed by the XXXXXXXXXX and other organizations.

Position:

Cannot determine whether Guideline 4 applies.

Reasons:

Lack of information

		February 8, 1996

	Edmonton Tax Services Office	HEADQUARTERS
	Communications			C. Chouinard
	Attention: Ron Quinn, Manager	957-8953

		7-952947

The Indian Act Tax Exemption - XXXXXXXXXX

This is in response to your memorandum of November 7, 1995, wherein you requested our comments with respect to the application of Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") in respect of nine Indian employees employed off reserve by various organizations.

Facts

We understand the facts to be as follows:

XXXXXXXXXX

Your Position

In your opinion, the Indians in question meet the criteria of Guideline 4, since they are employed by an Indian band which is resident on a reserve and their duties of employment are in connection with the social, cultural, educational or economic development of Indians who for the most part live on reserves. Accordingly, their employment income should be exempt from taxation.

Our Comments

We cannot conclusively determine whether Guideline 4 would apply to any of the nine Indian employees without additional information.

Thus, as regards the four Indians who are employed by the XXXXXXXXXX although it appears that the employer is resident on a reserve and that it is an Indian band that has reserves, it is not clear from the information provided that the duties of employment of the Indians are in connection with the Band's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. In order to determine whether Guideline 4 applies to these employees, we would require information regarding the nature of the duties performed by the Indians and whether these duties are carried on exclusively for the benefit of Indians who for the most part live on reserves.

With respect to the other Indian employees, the documentation you supplied does not establish that their employers,
XXXXXXXXXX

are resident on a reserve. In order for an employer to be resident on a reserve, as indicated in the Guidelines, the reserve must be 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." However, the fact that the employer's head office is on a reserve is not an indication that the employer is resident on a reserve.

Where an organization asserts that it satisfies the definition because it holds its board of directors meetings on reserve, it would generally be considered to satisfy the definition where management and control over the organization is legitimately exercised during those meetings. A review of 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 best be resolved by your office. Nevertheless, in our view, in a situation where the board of directors meets on a reserve, at which decisions are made which direct an organization's operations, such an organization would generally be considered to be resident on a reserve.

In addition, in order for an Indian organization to qualify under Guideline 4, it must be controlled by one or more Indian bands which have reserves or tribal councils representing one or more Indian bands which have reserves and it must be dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves. We cannot determine from the information provided whether

XXXXXXXXXX

meet this description. However, it is not sufficient that the organization's activities or the services provided by the organization be connected to reserves. Moreover, Indians in the population served by the organization must for the most part live on reserve.

In order to establish that these employers meet these criteria, we would require information regarding the identity of the entity or persons who control these employers and the mandate or objects of these employers, as well as, information as to who benefits from the services provided by these employers. In this respect, you should note that it is not sufficient to indicate that the employer organizations carry on activities for the benefit of band members, unless it can be established that the band members are Indians who for the most part live on reserves. In addition, the fact that the employer provides a worthwhile service to Indians and that all of the profits of an organization will be used to assist the Indian community is insufficient rationale to provide the employees of the organization with a tax exemption on their employment income. Even though an organization is operated without a profit motive, it may still be carrying on a commercial operation. A commercial activity would generally entail 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.

In summary, 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. The information provided does not enable us to determine whether Guideline 4 would apply to exempt the employment income earned by the nine Indians employed by the XXXXXXXXXX and other organizations.

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