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.Whether the land on which XXXXXXXXXX carries on its activities (the "Land") qualifies as a reserve under section 36 of the Indian Act ("Special Reserves").
2.Whether the employment income of an Indian employee of XXXXXXXXXX is exempt.
Position TAKEN:
1.No.
2.Insufficient information provided to determine which, if any, of the Guidelines could apply; although they most likely do not apply.
Reasons FOR POSITION TAKEN:
1.To qualify under section 36 of the Indian Act, land given to Indians must, inter alia, "have been set apart for the use and benefit of a band". In the context of this provision, lands would be "set apart" by Her Majesty, and this would be done by an Order in Council, initiated by the Department of Indian Affairs and Northern Development ("DIAND"). Officials of DIAND advise us that, at this time, there are no special reserves under section 36 of the Indian Act.
2.We have not been provided with details regarding the actual location(s) where the Indian performed his employment duties and the percentage of the duties performed at each location. However, assuming that all of his duties were performed on the Land, Guidelines 1 and 3 could not apply to exempt his employment income. We have not been provided with details on where the Indian lived and on the residence of the employer (i.e., XXXXXXXXXX); nonetheless, if the employer is resident on the Land, Guideline 2 cannot apply. Finally, based on the limited information provided, it appears that Guideline 4 could nonetheless not apply, as the employer's activities appear to be commercial in nature.
March 17, 1997
T1 Adjustments Section HEADQUARTERS
M. Azzi
Attention: Bruce Gilmour 957-8953
7-963482
Employment Income of a Status Indian - XXXXXXXXXX
This is in reply to your memo of October 21, 1996, requesting our views on whether the 1995 employment income of the above-noted status Indian, from XXXXXXXXXX, is exempt from taxation.
In support of the claim for exemption, XXXXXXXXXX has provided a letter (dated September 25, 1996) which essentially indicates that the land on which it carries on its activities (the "Land") constitutes a "special reserve" within the provisions of the Indian Act, as the Land is held in trust by XXXXXXXXXX We understand that XXXXXXXXXX is a wholly owned subsidiary of XXXXXXXXXX, which is in turn wholly owned by XXXXXXXXXX indicates that all issued and outstanding shares of XXXXXXXXXX are held in trust for the use and benefit of the members of
XXXXXXXXXX
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 "on a reserve", as used in the Guidelines, is defined on page 10 of the Guidelines to mean "on a reserve as defined for purposes of the Indian Act, including any settlements deemed to be reserves for purposes of the Indian Settlements Remission Order, and any other areas given similar treatment under federal legislation (for example, Category I-A lands under the Cree-Naskapi (of Quebec) Act)." According to subsection 2(1) of the Indian Act, "reserve", for purposes of the Indian Act, means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band, and for purposes of section 87 of the Indian Act, includes designated lands. "Designated lands" is defined in subsection 2(1) of the Indian Act as "a tract of land or any interest therein, the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests".
Section 36 of the Indian Act ("Special Reserves") provides that "where lands have been set apart for the use and benefit of a band and legal title thereto is not vested in Her Majesty", such lands will be considered a reserve for purposes of the Indian Act. As the legal title to the Land referred to above is not vested in Her Majesty, it appears that XXXXXXXXXX is claiming that the Land qualifies as a reserve under section 36 of the Indian Act.
In the context of section 36 of the Indian Act, lands would be "set apart" by Her Majesty, and this would be done by an Order in Council initiated by the Department of Indian Affairs and Northern Development ("DIAND"). Officials of DIAND advise us that, at this time, there are no special reserves under section 36 of the Indian Act and there is no movement to create any. Consequently, the above Land does not qualify as a reserve for purposes of the Indian Act and the Guidelines.
We have not been provided with details regarding the actual location(s) where XXXXXXXXXX performed his employment duties and the percentage of the duties performed at each location. However, assuming that all of his duties were performed on the Land, Guidelines 1 and 3 could not apply to exempt his employment income XXXXXXXXXX.
As regards to Guideline 2, we cannot establish whether it could apply, since we have not been provided with details on where XXXXXXXXXX lived in XXXXXXXXXX, and on the residence of the employer (i.e., XXXXXXXXXX). Nonetheless, if XXXXXXXXXX is resident on the Land, Guideline 2 cannot apply. 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. 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.
Finally, please note that, although we have been provided with limited information, in our view, Guideline 4 could nonetheless not apply in this situation, as XXXXXXXXXX activities appear to be commercial in nature. As a general rule, a commercial activity entails the provision of services or the creation of a product to be provided to others for compensation. On the other hand, an example of a non-commercial activity would be a governmental or quasi-governmental activity.
R. Albert
for Director
Business and Publications 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, 1997
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, 1997
Email this Content