4 March 1996 External T.I. 9531355 - APPLICATION DATE OF INDIAN ACT EXEMPTION GUIDELINES

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.Application date of Indian Act Exemption for Employment Income Guidelines (the "Guidelines").

2.What is the definition of "employer is resident on a reserve"?

Position TAKEN:

1.The Guidelines are relevant for taxation years after 1991; however, for years prior to 1993, certain income tax was remitted pursuant to Remission Orders.

2.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.

Reasons FOR POSITION TAKEN:

1.Subsequent to Nowegijick, an Order in Council was made to remit income tax for the years 1983 through 1985 in respect of employment income of an Indian that was attributable to the Indian's duties performed on a reserve. This Order was subsequently amended to extend the remission up to and including 1992, and to enlarge its scope to apply in respect of certain receipts of superannuation or pension benefits under a registered pension fund or plan, certain retiring allowances and certain training allowances.

As result of Williams, a new Order in Council was made to remit income tax on employment income received by Indians in 1992 and 1993 (and in 1994 for arrangements already in place at December 31, 1993) from employers residing on reserves or certain Indian settlements. This Remission Order also applied to remit income tax assessed for the years 1985 through 1991 on Unemployment Insurance benefits that were derived from employment income that was exempt.

2.Position taken in other files and in the Guidelines.

		5-953135
XXXXXXXXXX		M. Azzi

March 4, 1996

Dear Madam:

Re: Indian Act Exemption for Employment Income Guidelines

This is in reply to your letter of November 3, 1995, requesting certain clarifications with respect to the guidelines relating to the Indian Act exemption, which are referred to in the Special Release to IT-397R dated July 15, 1995. Please note that your concerns regarding the supporting documents required to support claims for the exemption, with respect to items such as pension income, have been forwarded to our Individual Returns and Payment Processing Directorate for reply.

Our Comments

Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve. The Courts have determined that, for the purposes of section 87 of the Indian Act, employment income is personal property. Consequently, in the case of employment income earned by an Indian, what must be determined is whether the employment income is situated on a reserve.

In determining where the employment of status Indian is "situated", prior to the Williams case (92 DTC 6320, (1992) 1 CTC 225), direction was provided by the Nowegijick case (83 DTC 5041, (1983) CTC 20), when it found that the situs of the debtor determined whether income was situated on a reserve and, therefore, exempt from taxation. In Williams, however, the Supreme Court of Canada rejected the situs of the debtor test as the sole test for determining whether personal property of an Indian was situated on a reserve, indicating that "an overly rigid test which identified one or two factors as having controlling force...would be open to manipulation and abuse". The approach adopted in Williams requires the examination of all factors connecting income to a reserve 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.

The Guidelines are relevant for taxation years after 1991; however, for years prior to 1993, certain income tax was remitted pursuant to Remission Orders. Subsequent to Nowegijick, an Order in Council (P.C. 1985-2446 dated August 7, 1985) was made to remit income tax for the years 1983 through 1985 in respect of employment income of an Indian that was attributable to the Indian's duties performed on a reserve. This Order was subsequently amended by P.C. 1988-787, 1991-264 and 1992-938 to extend the remission up to and including 1992, and to enlarge its scope to apply in respect of certain receipts of superannuation or pension benefits under a registered pension fund or plan, certain retiring allowances and certain training allowances.

As result of Williams, a new Order in Council (P.C. 1993-523 dated March 16, 1993) was made to remit income tax on employment income received by Indians in 1992 and 1993 (extended to 1994 by P.C. 1994-799 for arrangements already in place at December 31, 1993) from employers residing on reserves or certain Indian settlements. This Remission Order also applied to remit income tax assessed for the years 1985 through 1991 on Unemployment Insurance benefits that were derived from employment income that was exempt. Other types of employment-related income, such as CPP payments, were not covered by this Remission Order.

With respect to your query regarding paragraph 2(c) of the Special Release to IT-397R, please note that this paragraph is explaining Guideline 3. Under Guideline 3, employment income will be exempt if more than 50% of the employment duties are performed on a reserve and either the employer is resident on a reserve, or the Indian lives on a reserve.

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.

Finally, please note that your request regarding the Payroll Guide to Preparing T4 Returns should be addressed to your local Tax Services Office.

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