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 a portion of the Unemployment Insurance ("UI") benefits received by a status Indian qualifies for the tax exemption provided under the Indian Act.
Position TAKEN:
General comments provided.
Reasons FOR POSITION TAKEN:
Insufficient information provided in order to determine whether the employment income, which gave rise to the UI benefits, was exempt from tax and, consequently, whether any of the UI benefits are exempt.
January 9, 1996
Ottawa Taxation Centre HEADQUARTERS
Enquiries & Adjustments M. Azzi
957-8953
Attention: P. Willey
7-953188
Taxation of UI Benefits of a Status Indian - XXXXXXXXXX
This is in reply to your memo of December 1, 1995, wherein you request our views as to which portion of the Unemployment Insurance ("UI") benefits received in 1994, by the above-noted status Indian, would qualify for the tax exemption provided under the Indian Act.
Prior to the Williams case (92 DTC 6320), direction was provided by the Nowegijick case (83 DTC 5041), when it found that the situs of the debtor determined whether income of a status Indian would be 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, when it decided that UI benefits received in respect of employment income that was exempt from taxation were also exempt from taxation.
On general direction provided in Williams was that "an overly rigid test which identified one or two facts 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.
The Indian Act Exemption for Employment Income Guidelines (the "Guidelines"), issued by the Department in June 1994, incorporates various connecting factors that describe the employment situations covered by the Indian Act. Furthermore, the Guidelines provide that employment-related income of a status Indian, such as UI benefits, will usually be exempt from income tax when received as a result of employment income that was exempt from tax. If a portion of the employment income was exempt, then a similar portion of the benefits will be exempt. As indicated in TOM 19(25)(22).(15), to which you refer in your memo, in calculating the tax exempt part of UI benefits, the Department allows the most favourable result by prorating using either the last 20 weeks of insurable employment or the 52 weeks immediately preceding the commencement of the benefit period.
We have not been provided with sufficient information in order to determine whether the employment income, which gave rise to the above-noted individual's 1994 UI benefits, was exempt from tax. Consequently, we cannot determine which portion, if any, of the UI benefits is exempt from tax. We have, however, enclosed a copy of the Guidelines to assist you in determining which portion of the employment income (that gave rise to the UI benefits) is exempt. Once you have determined if the employment income is tax-exempt, you will be in a position to determine which portion of the UI benefits is exempt, as explained above and in TOM 19(25)(22).(15).
As requested, we are returning all correspondence which you had sent to us.
We trust that these comments will be of assistance.
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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