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:
Follow-up to our letter in file 7-964086. In light of additional information submitted, is the employment income of a particular Indian employee of XXXXXXXXXX exempt from taxation by virtue of Guideline 4?
Position TAKEN:
While it appears that most of the requirements of Guideline 4 have been met, we are still not in a position to determine if certain specific elements of this Guideline have been satisfied.
Reasons FOR POSITION TAKEN:
We cannot conclusively establish whether XXXXXXXXXX is resident on a reserve, as such a determination requires 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. This question of fact is best resolved by a Tax Services Office. Nevertheless, if, as indicated by the taxpayer, the Board of Directors of XXXXXXXXXX meet on reserve and, at such meetings, decisions are made which direct the operations of XXXXXXXXXX, we would agree that XXXXXXXXXX is resident on reserve.
Based on the information submitted (excerpt from the By-laws and XXXXXXXXXX "), it appears that XXXXXXXXXX is dedicated exclusively to the social, cultural and educational development of Indians. However, as we have not been provided with information on the population actually served by XXXXXXXXXX, we are not in a position to establish whether it consists almost entirely of Indians who live on reserves. Furthermore, we have not been provided with details as to the services provided at the XXXXXXXXXX (where the employee performs her duties), and whether persons served by the XXXXXXXXXX live at the XXXXXXXXXX or elsewhere on or off reserves. It is a question of fact whether an Indian lives on reserve. As indicated on page 10 of the Guidelines, the term "Indian lives on a reserve" means the Indian lives on the reserve in a domestic establishment that is his or her principal place of residence and that is the centre of his or her daily routine. However, it should also be noted that the fact that an Indian may be absent from a reserve for a short period of time, while obtaining assistance at the XXXXXXXXXX, does not necessarily mean that the Indian has taken up residence off reserve.
In determining whether Guideline 4 applies to a particular Indian employee, the employment duties of the Indian employee would also have to be considered, in order to determine whether they 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. We were not provided with details regarding the above-noted Indian's employment duties.
5-970419
XXXXXXXXXX M. AzziAttention: XXXXXXXXXX
September 4, 1997
Dear Sir:
Re: Status Indian Employee - XXXXXXXXXX
This is in reply to your letter January 21, 1997, wherein you requested that, in light of additional information, we review our decision of December 20, 1996 (our file 7-964086) regarding the tax status of the employment income of XXXXXXXXXX In your view, XXXXXXXXXX employment income from XXXXXXXXXX qualifies for exemption under Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines").
The following is our understanding of the facts as revised by your January 21, 1997 letter:
1.XXXXXXXXXX was incorporated under the XXXXXXXXXX Each of these XXXXXXXXXX bands has a reserve as defined for purposes of the Indian Act.
2.You indicate that the head office of XXXXXXXXXX is situated on the XXXXXXXXXX reserve. XXXXXXXXXX is a reserve as defined for purposes of the Indian Act. XXXXXXXXXX
3.You indicate that the principal office and place of administration of XXXXXXXXXX is located on the XXXXXXXXXX reserve, and that day-to-day management of XXXXXXXXXX is provided by the Executive Director and senior supervisory staff at this office. The Executive Committee of Officers also meet at this on-reserve office. You indicate that the Board of Directors meetings are always held at the on-reserve office, except for certain "rare" occasions when XXXXXXXXXX has orientation/planning retreats for special purposes.
XXXXXXXXXX
7.XXXXXXXXXX lives and is employed at XXXXXXXXXX located off reserve. We understand that substantially all of XXXXXXXXXX employment duties are performed at the off-reserve location, while a minimal amount (less than 10%) of her duties are performed on reserve.
As previously indicated, 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.
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.
We cannot conclusively establish whether XXXXXXXXXX is resident on a reserve, as such a determination requires 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. As previously indicated, this question of fact is best resolved by a Tax Services Office. Nevertheless, in our view, if, as indicated above, the Board of Directors of XXXXXXXXXX meet on reserve and, at such meetings, decisions are made which direct the operations of XXXXXXXXXX, we would agree that XXXXXXXXXX is resident on reserve.
As XXXXXXXXXX is not an Indian band or tribal council, in order for Guideline 4 to apply, XXXXXXXXXX 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 exists 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 regarding the nomination of the voting members and the Board of Directors, it appears that this requirement of Guideline 4 is met with respect to XXXXXXXXXX.
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. In addition, the 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.
Based on the excerpt from the By-laws and XXXXXXXXXX which were submitted, it appears that XXXXXXXXXX is dedicated exclusively to the social, cultural and educational development of Indians. However, as we have not been provided with information on the population actually served by XXXXXXXXXX, we are not in a position to establish whether it consists almost entirely of Indians who live on reserves. XXXXXXXXXX Furthermore, we have not been provided with details as to the services provided at the XXXXXXXXXX, and whether persons served by XXXXXXXXXX live at XXXXXXXXXX or elsewhere on or off reserves. It is a question of fact whether an Indian lives on reserve. As indicated on page 10 of the Guidelines, the term "Indian lives on a reserve" means the Indian lives on the reserve in a domestic establishment that is his or her principal place of residence and that is the centre of his or her daily routine. However, it should also be noted that the fact that an Indian may be absent from a reserve for a short period of time, while obtaining assistance at XXXXXXXXXX, does not necessarily mean that the Indian has taken up residence off reserve.
Finally, as indicated in our previous letter, in determining whether Guideline 4 applies to a particular Indian employee, the employment duties of the Indian employee would also have to be considered, in order to determine whether they 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. While the employer may have a non-profit mandate, this does not necessarily mean that all of its activities are non-commercial. As we have not been provided with details regarding XXXXXXXXXX employment duties, we cannot establish whether this element of Guideline 4 has been met. Nonetheless, please note that it is our view that, 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.
In summary, while it appears that most of the requirements of Guideline 4 have been met with respect to XXXXXXXXXX employment with XXXXXXXXXX, we are still not in a position the determine if certain specific elements of this Guideline have been satisfied, as explained above. Nonetheless, we hope that we have provided you with sufficient information in order to assist you in establishing whether the remaining requirements have been met.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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