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:
To what extent is business income of an Indian exempt if some of the work is performed on reserve and some is performed off reserve?
Position:
In this particular case, income from work carried out on reserve is exempt, while income from work carried out off reserve is taxable.
Reasons:
In the facts of this business, the work done on reserve was done for an Indian band -- two factors connecting this portion of the income to a reserve; and the work done off reserve was done for a non-Indian entity -- two factors connecting this portion of the income to a location off reserve.
960469
XXXXXXXXXX J.D. Brooks
Attention: XXXXXXXXXX
March 29, 1996
Dear XXXXXXXXXX:
This is in reply to your letter of January 31, 1996 in which you requested our views on the taxability of the business income of one of your clients. The relevant facts concerning the situation of your client were provided to us by telephone (Brooks/XXXXXXXXXX) on March 27, 1996.
The person involved is a status Indian who lives on an Indian reserve as defined in the Indian Act. Last year, he started a silviculture business and it is based on the reserve. He has thirteen employees, all status Indians. In 1995, about one-half of the business activities was done for an Indian band, the activities being performed on reserve lands. The remainder of the business activities was carried out for the Ministry of Forests, the activities being performed on land owned by that Ministry.
It is your view that the income from work performed on reserve is not subject to tax and that, in determining the amount of income earned on reserve, business expenses should be allocated in the same ratio that business revenue is allocated. This ratio may change from year to year.
The fact situation which you set out is quite specific and apparently relates to completed transactions. Assurance as to the tax consequences of completed transactions can only be given by officials of a Tax Services office. Nevertheless, we have set out below some comments which may be of assistance to you.
Section 87 of the Indian Act provides that the personal property of an Indian situated on a reserve is exempt from taxation. For purposes of section 87, income is considered to be personal property. Thus, to the extent that business income is earned on a reserve by an Indian, it will be exempt from income tax. There is no deeming provision which determines for purposes of the Indian Act exemption how income should be allocated among various locations. In our view, allocations should be determined on a case-by-case basis and should be reasonable in the circumstances.
It should be noted that where a portion of income from a business is exempt and the remaining portion is not exempt, the expenses which pertain to the exempt portion are not deductible. Normally, expenses should be allocated in the same proportion as revenue unless another allocation could be shown to be more reasonable in the circumstances. In a specific situation, it could be that some expenses pertain entirely to the exempt portion or to the taxable portion, and in that case, a specific allocation of the entire expense to its respective portion would be most appropriate.
We note from the stated facts that, with respect to the business activities carried out on reserve, the client was an Indian band which has a reserve. It is our view that the portion of business income earned from these activities would be exempt from income tax.
These comments represent an expression of opinion and, as stated in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department. Nothing in this letter should be construed as implying that Revenue Canada has agreed to or reviewed the determination of the extent to which business activities have been carried out on reserve.
We trust that these comments will be helpful to you.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1996
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1996
Email this Content