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.Is the employment income of a status Indian as the
XXXXXXXXXX
exempt from taxation under Guideline 4?
2.Is the entire amount of vacation leave exempt, when it relates to employment income which is in part exempt (i.e., employment duties are performed on and off reserve)?
Position TAKEN:
1.No.
2.No.
Reasons FOR POSITION TAKEN:
1.Based on the limited information provided, Guideline 4 cannot apply as the employer (i.e., the University) is not resident on a reserve. In addition, the University is not an Indian band or tribal council, nor is it an Indian organization controlled by one or more Indian bands which have reserves or tribal councils representing one or more Indian bands which have reserves.
2.Employment income received for vacation leave, sick leave and statutory holidays should be prorated based on the performance of employment duties on and off reserve, regardless of whether the leave or holidays were taken on or off reserve.
5-960054
XXXXXXXXXX M. Azzi
February 8, 1996
Dear Madam:
Re: Indian Act Exemption for Employment Income
This is in reply to your letter of April 28, 1995, which has been forwarded to us for reply on December 20, 1995 by the XXXXXXXXXX Tax Services Office. You have requested a review of your 1993 and 1994 income tax returns as, in your view, the full amount of your employment income with XXXXXXXXXX (the "University") is exempt from taxation under Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines").
We understand that you are a status Indian and live on a reserve. In 1993 and 1994 you were employed by the University as the XXXXXXXXXX. The University has indicated that, in each of these years, 33 1/3% of your time was spent working on reserve and that your vacation allocation of six weeks is included in this percentage. For 1993 and 1994, 66 2/3% of your employment income from the University was included in income for income tax purposes.
For your information, we have enclosed a copy of the Guidelines. Please note that Guideline 4 requires a) that the employer is resident on a reserve; b) that the employer is an Indian band which has a reserve, or a tribal council representing one or more Indian bands which have reserves, or an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves; and c) that the duties of the employment are in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. These elements must all be satisfied in order for Guideline 4 to apply. This Guideline is a generous interpretation of the direction provided by the Courts in Williams (92 DTC 6320, (1992) 1 CTC 225), so it is appropriate to restrict its application to situations that fit squarely within it.
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.
Based on the limited information provided in your letter, it appears that the requirements in at least a) and b) above have not been met. Accordingly, Guideline 4 cannot apply to exempt your employment income from taxation. That is, Guideline 4 cannot apply as the employer (i.e., the University) is not resident on a reserve. In addition, the University is not an Indian band or tribal council, nor is it an Indian organization controlled by one or more Indian bands which have reserves or tribal councils representing one or more Indian bands which have reserves.
Furthermore, based on the information provided, Guideline 2 cannot apply as the employer is not resident on a reserve and Guideline 3 cannot apply since you do not perform more than 50% of the duties of your employment on a reserve. Also, Guideline 1 cannot apply to exempt all of your employment income from taxation, as you do not perform at least 90% of your employment duties on a reserve. However, the Proration Rule to Guideline 1 can apply to exempt the portion of your employment income that relates to your employment duties performed on a reserve.
Please note that, in calculating the time spent performing employment duties on a reserve, travel time to and from the reserve is not included. It should also be noted that employment income received for vacation leave, sick leave and statutory holidays should also be prorated based on the performance of employment duties on and off reserve, regardless of whether the leave or holidays were taken on or off reserve. For example, if during a year a status Indian works on reserve 94 days, works off reserve 141 days (for a total of 235 days worked), and takes 25 days off for vacation, sick leave and statutory holidays, the Indian's exempt employment income for the year is calculated as follows:
94/235 X employment income = exempt employment income.
(including amounts
received for leave
and holidays)
By including your vacation allocation of six weeks in your percentage of time worked on reserve, the entire amount of your vacation leave has been treated as exempt. In our view, your vacation leave should have been subject to proration as explained above.
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
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