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 location of an office of a brokerage firm on reserve would be sufficient to ensure that any income earned by a registered Indian on investments acquired through that office would be exempt from income tax.
POSITION:
No.
REASONS:
The location of such an office would only be one factor to consider. Furthermore, the recent case of Recalma indicates that the fact that an investment can be considered to be in the commercial mainstream may be sufficient to outweigh the factors that serve to connect the income to a reserve.
962340 XXXXXXXXXX J.D. Brooks
September 11, 1996
Dear XXXXXXXXXX
Re: Investment Income of Indians
This letter is in reply to your letter of June 27, 1996 in which you requested our opinion concerning the application of the Indian Act to investment income. Specifically, you queried whether the location of an office of a brokerage firm on reserve would be sufficient to ensure that any income earned by a registered Indian on investments acquired through that office would be exempt from income tax.
Our Comments
In general terms, it is section 87 of the Indian Act, along with paragraph 81(1)(a) of the Income Tax Act, that establishes the Indian exemption from taxation. Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve, and the courts have previously concluded that the reference to personal property in section 87 includes income.
In determining whether the income earned by an Indian is situated on a reserve, and thus exempt from taxation, the approach taken by the Supreme Court of Canada in the 1992 case of Glenn Williams v. Her Majesty the Queen [ [1992] 1 C.T.C. 225] must be followed. This approach requires the examination of all factors connecting income to a reserve to determine if the income is located on the reserve. The Court also indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian to personal property situated on a reserve. One general direction provided by the Supreme Court in Williams was that "an overly rigid test which identified one or two factors as having controlling force ... would be open to manipulation and abuse." The Supreme Court rejected the situs of the debtor test as the sole test for determining whether the personal property of an Indian or band was situated on a reserve.
With respect to investment income, the Department has taken the view that the location of a savings account at a bank branch on a reserve would not in itself be sufficient to exempt the interest income earned thereon. Where a bank account is considered to be situated at a location on reserve, this is one factor to weigh in determining whether interest earned on deposits in that account is exempt from taxation. There could be other factors that would connect the income to a location off reserve.
In the recent case of Arnold Recalma v. Her Majesty the Queen [ [1996] 3 C.T.C. 2272D] (94-1971(IT)G), the Tax Court of Canada considered the taxability of income earned by an Indian from investments purchased from a branch of a bank situated on a reserve. The securities were bankers' acceptances and managed funds. It was noted by the Court that the income stream for these financial instruments started with companies that were located off reserve, and it was held that the investment income of the taxpayer was not personal property situated on a reserve. Rather, the income was earned in the economic mainstream.
In conclusion, in our view, the fact that an office of a brokerage firm is situated on reserve is not sufficient to ensure that income earned by an Indian on investments acquired at that office will be exempt from taxation.
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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