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 employment income of the Indian employees of the XXXXXXXXXX is exempt from taxation by virtue of Guideline 4.
Position TAKEN:
Provided general comments on the application of Guideline 4.
Reasons FOR POSITION TAKEN:
Insufficient information provided by the T/P to establish whether Guideline 4 (or any of the other Guidelines) may apply.
5-961154
XXXXXXXXXX M. Azzi
July 10, 1996
Dear Sir:
Re: XXXXXXXXXX
This is in reply to your letters of March 28 and June 6, 1996 requesting our views on the tax status of the employment income earned by the Indian employees of the XXXXXXXXXX (the "Council").
Our understanding of facts is as follows:
1.The Council is a non-profit organization which was created by Indian Bands in XXXXXXXXXX.
2.You indicate that the Council is controlled by a board of directors who meet on reserves and represent reserves, and Native communities. All of the programs of the Council are for Indians on reserve and almost all programs are conducted on reserve.
3.The staff members of the Council are status Indians.
4.The office of Council is situated XXXXXXXXXX off reserve and is shared with XXXXXXXXXX.
5.The financial accounts and payments of salaries are on reserve.
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 determined that employment income is personal property. Therefore, what must be determined is whether the employment income is situated on a reserve. The Supreme Court of Canada in Williams (92 DTC 6320) has directed that all factors connecting income to a reserve must be examined to determine if the income is located on the reserve.
Based on the guidance provided in Williams and after receiving representations from interested Indian groups and individuals, the Department identified a number of connecting factors that can be used to determine whether employment income is situated on a reserve. With a view to assisting the Indian community, the Department developed the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"), incorporating the various connecting factors that describe the employment situations covered by the Indian Act. We have enclosed a copy of the Guidelines for your information.
Based on the information you have submitted, it appears that your enquiry relates to the application of Guideline 4. 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. Furthermore, if Guideline 4 applies with respect to an Indian's employment, the Indian's income from the employment will be exempt regardless of whether the Indian performs the duties of the employment on or off reserve.
From the information submitted, we cannot determine whether all of the elements of Guideline 4 have been satisfied and, consequently, whether this Guideline will apply to the employees of the Council. Nonetheless, we can offer the following general comments which may be of assistance.
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. A review of all of the facts surrounding a situation including the minutes of board of directors meetings and resolutions or by-laws passed thereat would be required to conclusively resolve this question of fact and this would be best resolved by a Tax Services Office. Nevertheless, in our view, in a situation where the board of directors meet on reserve, albeit different reserves, at which decisions are made which direct an organization's operations, such an organization would generally be considered resident on reserve.
As the Council is not an Indian band or tribal council, in order for Guideline 4 to apply, the Council must be 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. The concept of control in Guideline 4 is the kind that exits where there is power to command and direct. Where a band or tribal council can replace the directors of an organization, the band or tribal council could be said to control the organization. Based on the information provided, we cannot determine whether this element of Guideline 4 has been met with respect to the Council.
The intention of the word "exclusively" is to restrict Guideline 4 to those organizations which are dedicated only to the social, cultural, educational or economic development of Indians living on reserve. It would not be sufficient to have these being only part of an organization's objectives. Guideline 4 is a generous interpretation of the direction provided by the Courts in Williams, so it is appropriate to restrict its application to situations that fit squarely within it. We have not been provided with sufficient details with respect to the Council's objects or mandate, as well as its programs, in order to determine whether this element of Guideline 4 has been met.
One of the requirements of Guideline 4 is that an organization must be dedicated exclusively to the development of Indians "who for the most part live on reserves." That is, almost all of the Indians in the population served by the organization must live on reserve. Guideline 4 recognizes that there will be situations where an Indian works for an organization which is dedicated exclusively to the development of Indians on reserves, and the work may require the Indian to live away from the reserve. Although the employee's residence would not be a factor which connects the Indian's employment to the reserve, it is appropriate, under the circumstances laid out in Guideline 4, to recognize a connection since the employee is working for the benefit of Indians on reserve. However, if the population served by the organization was not comprised almost entirely of Indians who live on reserve, this latter connection would not exist.
In addition, to determine whether Guideline 4 applies, the employment duties of each particular Indian employee of the Council would have to be considered to establish if they were 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. While the Council may have a non-profit mandate, this does not necessarily mean that all of its activities are non-commercial.
Finally, please note that we cannot provide comments on whether Guideline 1, 2 or 3 would apply to the Indian employees of the Council, as we have not been provided with information as to whether any portion of their employment duties are performed on reserve and whether the employees live on reserve.
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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