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:
The tax treatment of business income earned by Indians in three particular scenarios. The first scenario involves a fisherman, the second a trucker, and the last a bookkeeping service.
Position TAKEN:
Insufficient information provided by the taxpayer; therefore we provided general comments:
One significant factor that serves to connect business income to a location on reserve or off reserve is the location of the business' customers. Another significant connecting factor would be the location where the activities are carried out (as well as, in the case of a trucker, the location of the origin and the destination of the trips). If all of an Indian's business income was derived from customers located off reserve and all of the work was done off reserve, the business income would generally not be exempt from taxation. If a portion of the business activities were carried on on reserve, a similar portion of the business income would generally be exempt. The fact that a bookkeeper was employed to maintain the books and records of an Indian's business in an on reserve office is not, in itself, sufficient to connect the business income to a location on reserve.
Reasons FOR POSITION TAKEN:
Position taken in previous files and based on the approach adopted in Williams.
5-953233
XXXXXXXXXX M. Azzi
Attention: XXXXXXXXXX
November 6, 1996
Dear Madam:
Re: Business Income of Status Indians
This is in reply to your letter of December 11, 1995, wherein you requested our views on the tax treatment of business income earned by self-employed status Indians in three particular scenarios. The first scenario involves a fisherman, the second a trucker, and the last a bookkeeping service.
We apologize for the unavoidable delay that has been encountered in replying to your request. In light of the decision of the Supreme Court of Canada in Williams v. Her Majesty the Queen (92 DTC 6320), the Department has had to review its interpretation of the scope of the exemption from income taxation provided under the Indian Act.
Paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act provide a tax exemption for an Indian's personal property situated on a reserve. The Courts have previously determined that, for purposes of section 87 of the Indian Act, the reference to personal property includes income. In Williams, the Supreme Court of Canada reconsidered the approach to use in determining whether income is situated on a reserve. The proper approach in determining the situs of personal property is to evaluate the various connecting factors which tie the property to one location or another. The Supreme Court indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian to personal property situated on a reserve.
We have not been provided with sufficient information on the connecting factors of the individuals in the above-noted scenarios in order to determine whether their business income would be exempt. However, we can offer the following general comments which should be of assistance.
Fisherman
One significant factor that serves to connect business income to a location on reserve or off reserve is the location of the business' customers. Another significant connecting factor would be the location where the activities are carried out. Generally, fishing is done off reserve. Therefore, where all of an Indian fisherman's business income was derived from customers located off reserve and all of the fishing was done off reserve, the business income would generally not be exempt from taxation. If a portion of the fishing activities were carried on on reserve, a similar portion of the business income would generally be exempt. While there may be some activities carried on in an office located on reserve, it is our view that the actual revenue-generating fishing activities would be more significant in determining whether the business income is connected to a reserve. Thus, the fact that a bookkeeper was employed by an Indian fisherman to maintain the books and records of the business in an on reserve office is not, in itself, sufficient to connect the business income to a location on reserve.
Trucker
In the case of a trucker, in addition to the above-noted significant connecting factors, the location of the origin and the destination of the trips would be a significant factor. Accordingly, if all trips originated at a location off reserve and terminated at a location off reserve and the customers were off reserve, the business income would generally not be exempt from income taxation. If a portion of the activities were carried out on reserve, a similar portion of the business income would generally be exempt. Again, the fact that a bookkeeper was employed to maintain books and records in an on reserve office is not, in itself, sufficient to connect an Indian trucker's business income to a location on reserve.
Bookkeeping Service
As indicated above, significant factors that serve to connect business income to a location on or off reserve are the location of the business' customers and the location where the activities are carried out. Therefore, if all of an Indian bookkeeper's business income was derived from customers located off reserve and all of the bookkeeping work was carried on off reserve, the business income would generally not be exempt from taxation. If a portion of the bookkeeping activities were carried on on reserve, a similar portion of the business income would generally be exempt.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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