9 January 1996 Internal T.I. 9530606 - INDIANS - EMLOYMENT INCOME

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:

1.Whether Remission Order P.C. 1994-799 only applies to employment arrangements that were in existence on December 31, 1993.

2.How to calculate the exempt portion of employment income where an Indian works on different projects, some of which are on a reserve and other off a reserve.

3.Whether Guideline 2 would apply where an Indian who does not normally live on reserve moves to a logging camp on reserve for a period of three months.

Position:

1.Yes.

2.The tax exemption should apply on a project by project basis to exempt the employment income earned in respect of projects performed on reserve.

3.Guideline 2 would not apply.

Reasons:

1.Section 3 of the Indian Income Tax Remission Order will apply to the 1994 taxation year "where the office or employment was held continuously since before 1994".

2.If neither Guideline 2 nor Guideline 3 apply, each project is considered to be a separate employment and the tax exemption would only apply to those projects which are performed on a reserve.

3.The Indian could not be said to be living on a reserve, since the logging camp could hardly be considered to be his or her principal place of residence.

		January 9, 1996

	Small and Medium Business  	HEADQUARTERS
	Enterprises Division	C. Chouinard
		957-8953
	Attention: J.J. Fennelly
		7-953060

Native Taxation Issues

This is in response to the Victoria Tax Services Office's memorandum of November 8, 1995 regarding certain native taxation issues, which you referred to us for our comments.

The first issue raised by the Victoria Tax Services Office is whether Remission Order P.C. 1994-799 only applies to employment arrangements that were in existence on December 31, 1993. This remission order extends the application of section 3 of the Indian Income Tax Remission Order (P.C. 1993-523) to the 1994 taxation year with regard to amounts payable by an employer residing on a reserve or Indian settlement in respect of an office or employment, where the office or employment was held continuously since before 1994. Therefore, if an employer resides on a reserve, this Remission Order will apply to exempt the employment income earned by an Indian from taxation, regardless of whether the Indian lives off or on reserve.

Subsection 3(3) of Remission Order P.C. 1994-799 provides that section 3 of the Indian Income Tax Remission Order will apply to the 1994 taxation year "where the office or employment was held continuously since before 1994". In our view, these words indicate that, unless the office or employment was held by the Indian prior to 1994, Remission Order P.C. 1994-799 will not apply to exempt the employment income from taxation. Although, for the 1994 taxation year, this may have resulted in the Indian employees of an on-reserve employer being treated differently as regards the Indian tax exemption, as of 1995, all such employees were subject to tax, unless there were factors other than the employer's residence on the reserve connecting their employment income to the reserve.

The second issue concerns the method of prorating the exempt and non-exempt portion of employment income earned by an Indian employed by an on-reserve employer. If the Indian lives on a reserve, there is no need to prorate the tax exemption, since all of the employment income earned by the Indian will be exempt from taxation in accordance with Guideline 2 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"). If the Indian does not live on a reserve, but performs more than 50% of his or her duties of employment on a reserve, Guideline 3 may apply. You should note, however, that Guideline 3 is not meant to exempt employment income in a situation of casual employment with an employer, where intermittent jobs are performed at different sites, some on and some off a reserve. If the projects referred to in your memorandum are separate jobs and not part of a continuous employment, each project would be considered to be a separate employment. If neither Guideline 2 nor Guideline 3 apply, the proration rule may apply, such that the portion of the income related to the duties performed on the reserve would be exempt from taxation. In our view, in a situation such as the one you described in your memorandum, the tax exemption should apply on a project by project basis to exempt the employment income earned in respect of projects performed on a reserve.

Generally, Guideline 3 could apply if an Indian continually worked for an employer on different job sites and more than 50% of the employment duties were performed on job sites on reserve. However, Guideline 3 is not intended to exempt all of the income earned from an employment where the location of employment duties moves off reserve. For example, if in October, an office physically moves off-reserve, Guideline 3 cannot be used to exempt the employment income earned during the rest of the year.

As regards the third issue, you inquire whether Guideline 2 of the Indian Act Exemption for Employment Income Guidelines would apply where an Indian who normally lives off reserve is hired by an on-reserve logging company to perform off-reserve logging work and to that end, the Indian moves to a logging camp on the reserve for a period of three months. In our view, in these circumstances, the Indian could not be said to be living on the reserve, since the logging camp would not be considered to be his or her principal place of residence. Accordingly, Guideline 2 would not apply to exempt the employment income earned by the Indian.

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