24 September 1996 External T.I. 9619335 - EMPLOYMENT INCOME OF AN INDIAN PILOT

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 status of the employment income of an Indian pilot.

Position TAKEN:

Insufficient information provided; however, it does not appear that any of the Guidelines would apply to exempt the entire employment income. The Proration Rule to Guideline 1 may apply to exempt the portion, if any, of the employment income that relates to the pilot's employment duties performed on a reserve.

Reasons FOR POSITION TAKEN:

Although, a review of all the facts would be required, the facts provided are a strong indication that the Employer is not resident on a reserve (however, additional details relating to the board of directors would be required).

We were not provided with information on whether any of the employee's employment duties are performed on reserve. Nonetheless, we assume that, as a pilot, most of the employment duties are performed off reserve.

									5-961933
XXXXXXXXXX							M. Azzi

Attention: XXXXXXXXXX

September 24, 1996

Dear Sir:

Re: Taxation of Employment Income of an Indian

This is in reply to your letter of May 22, 1996, requesting our views on the tax status of the employment income of an Indian.

Our understanding of facts is as follows:

1.The employee (the "Employee") is a status Indian who lives on a reserve and is employed as a pilot by an airline which flies between various points in XXXXXXXXXX.

2. XXXXXXXXXX.

3. XXXXXXXXXX.

4.The main administrative office of the Employer is located at XXXXXXXXXX which is not situated on a reserve. The offices of the chief executive officer, chief pilot, chief flight attendant and marketing manager are all located at the main administrative office. The functions carried out at this office include payroll, pilot training, cabin crew training and maintenance scheduling. Furthermore, the financial records, personnel department and computer operations are located at the main administrative office.

5. XXXXXXXXXX.

Our Comments

We have not been provided with sufficient information to determine the tax status of the Employee's employment income. However, we can offer the following general comments which are not binding on the Department.

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.

The term "employer is resident on a reserve", as used in the Guidelines, 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. Nonetheless, it should noted that satisfaction of the requirement that the employer be resident on a reserve is always of some concern where the head office of an organization is located on a reserve but its main place of business is located off reserve. 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.

Although, as indicated above, a review of all the facts would be required, in our view, the above facts are a strong indication that the Employer is not resident on a reserve. If such is the case, Guidelines 2 and 4 would not apply to exempt the Employee's employment income from taxation. Furthermore, Guideline 4 could not apply as the Employer and the Employee's employment duties are not as described in that Guideline.

We have not been provided with information on whether any of the Employee's employment duties are performed on reserve. Nonetheless, based on the above facts, we assume that, as a pilot, most of the employment duties are performed off reserve and, consequently, Guidelines 1 and 3 could not apply to exempt the Employee's employment income from taxation. However, the Proration Rule to Guideline 1 may apply to exempt the portion, if any, of the employment income that relates to the Employee's employment duties performed on a 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