9 June 1997 External T.I. 9705315 - STATUS OF INDIAN'S EMPLOYMENT INCOME WHILE SUSPENDED.

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 income from employment of a Status Indian, who is living on-reserve and who is a XXXXXXXXXX, is exempt while the employee is suspended (with pay).

Position:

No.

Reasons:

While the employee is suspended from his duties, the employee cannot be said to have performed 90% or 50% or more of the employment's duties on a reserve. In fact, during the time of suspension, the employee would likely have been specifically prohibited from performing his duties anywhere. Furthermore, since the employer does not reside on a reserve, none of the Guidelines apply.

970531
XXXXXXXXXX Roxane Brazeau-LeBlond, CA

June 9, 1997

Dear Sir/Madam:

Re: Exemption from tax of income from employment of a Status Indian

This is in response to your letter of February 19, 1997, concerning the exemption from tax on income you received from XXXXXXXXXX, period during which you were suspended from your duties.

We understand that you are a Status Indian and were living on a reserve at the time. XXXXXXXXXX

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and 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.

Guideline 1 would apply to exempt all of the income of an Indian if at least 90% of the employment duties are performed on a reserve. When less than 90% of the duties are performed on a reserve and none of the other guidelines apply, only the portion that is performed on a reserve is exempt (the proration rule).

Guideline 2 would apply to exempt the employment income of employees who live on reserve provided that the employer is in fact resident on a reserve. The condition that the 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.

Guideline 3 would apply to exempt all of the income of an Indian if more than 50% of the employment duties are performed on a reserve and the employer is resident on a reserve or the Indian lives on a reserve.

Guideline 4 requires that the employer is resident on a reserve. It also requires 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 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.

In our view, none of the Guidelines would appear to apply to your situation during the period that you were suspended from your duties of employment. Since you have not performed 90% or 50% of your employment duties on a reserve during the period you were suspended, Guideline 1 and Guideline 3 cannot apply to exempt all or part of your income from employment with XXXXXXXXXX. Furthermore, Guidelines 2 and 4 would not apply to exempt your income from employment with XXXXXXXXXX, since your employer is not resident 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