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 the Indian employees of School District XXXXXXXXXX qualify for tax exemption.
Position:
No
Reasons:
Neither Guideline 2 nor 4 applies since the employer is not resident on reserve. Neither Guideline 1 nor 3 applies since employees work off reserve
ADM'S OFFICE (3) ADM 80924
RETURN TO 15TH FLOOR, ALBION TOWER
January 5, 1996
XXXXXXXXXX
Dear XXXXXXXXXX:
I am replying to your letter of December 6, 1995, in which you queried whether certain employees of your School District would be exempt from taxation by virtue of the Indian Act.
You stated that your School District has a contract with the XXXXXXXXXX Reserve to provide educational services to children from the reserve. This is an exclusive contract to provide all educational services to children between grades three and twelve. As part of the contract, the School District has agreed to provide employment to native personnel from XXXXXXXXXX Employment duties are performed off reserve where the XXXXXXXXXX schools and the Board Office are located. The children commute to off-reserve sites for educational services.
In your conversation of December 19, 1995, with Mr. John Brooks of the Income Tax Rulings and Interpretations Directorate, you queried whether your employees who are status Indians living on reserve might qualify for exemption on the basis of exceptional circumstances. You pointed out that the employees are involved in the education of native children.
In response to the direction provided by the Supreme Court of Canada in the 1992 Williams case that one needs to consider and weigh the factors which connect an Indian's income to a reserve, the Department developed the Indian Act Exemption for Employment Income Guidelines, in consultation with interested parties, to provide Indians with a degree of certainty as to whether their employment income would be taxable. These guidelines, a copy of which I have enclosed for your convenience, apply the Williams decision in a fair and liberal manner consistent with the Supreme Court's decision.
The Indian Act provides exemption for the property of an Indian situated on a reserve, and it has been determined by the courts that, for this purpose, property includes employment income. In order to qualify for exemption from taxation, there must be a connection between the employment income and a reserve. It is not sufficient that an Indian performs services for other Indians. To satisfy the requirements of Guideline 1 or 3, your employees who are status Indians would need to perform more than 50% of their employment duties on reserve. For your employees to rely on Guideline 2 or 4, the School District, as employer, would need to be resident on reserve. In the situation you presented, the employment income is not sufficiently connected to a reserve and, therefore, your employees who are status Indians will be subject to taxation.
During your conversation with Mr. Brooks, you stated that the affected employees have previously been considered by the School District to be tax-exempt. Prior to the Williams decision, it had been held by the Supreme Court of Canada in the Nowegijick case that the situs of the debtor determined whether the amount paid by the debtor would be received by the recipient as exempt or taxable income. With respect to your affected employees, if the employment arrangement in previous years was similar to the present arrangement, it appears that the employees would not have been eligible for exemption. When the guidelines were finalized in 1994, it was noted that a transition period was extended to December 31, 1994, to enable those employees who were negatively affected to rearrange their affairs. This extended transition period applied only to arrangements already in place at December 31, 1993, and it applied to those employees who were exempt on the basis of the situs of the debtor. From the information you have supplied, this transition period would not have applied to your employees.
Should you wish to discuss your specific situation further, I suggest that you contact your local tax services office.
XXXXXXXXXX
I trust that this clarifies the issue for you.
Yours sincerely,
Denis Lefebvre
Assistant Deputy Minister
Policy and Legislation Branch
J.D. Brooks
957-2103
January 2, 1996
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