26 June 1997 External T.I. 9706735 - DEFINITION OF INDIAN AND STATUS OF BILL C-31 INDIANS

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.Can an "Indian" qualify for tax exemption prior to his or her actual registration as an Indian?

2.If yes to 1 above, how far back can tax returns be adjusted?

Position TAKEN:

1.Yes.

2.As a general rule, the Department is authorized to make adjustments to an assessment within 3 years from the date of the original assessment, by virtue of subsection 152(4). However, pursuant to subsections 152(4.2) and 164(1.5), the Department may issue reassessments and refunds to individuals beyond this 3 year period, and for taxation years dating back to 1985, as outlined in Information Circular 92-3. Requests for adjustments are the responsibility of the relevant TC.

The Department does not normally reassess on the basis of a court decision, since this would require a retroactive application of the court decision. Therefore, the Guidelines (i.e., Williams) are relevant for taxation years after 1991; however, the Department provided a transition period to December 31, 1994 to allow those who were negatively affected sufficient time to become aware of the implications of the Guidelines and to rearrange their affairs if necessary. Prior to Williams, that is for years prior to 1992, the views provided in Nowegijick applied. However, remission orders also applied from 1983 to 1992 to remit income tax in respect of employment income of an Indian that was attributable to the Indian's duties performed on a reserve.

Reasons FOR POSITION TAKEN:

1.Subsection 2(1) of the Indian Act defines an "Indian" as "a person who pursuant to this Act is registered as an Indian or is entitled to be registered as an Indian", while sections 6 and 7 of the Indian Act describe persons who are, and persons who are not, entitled to be registered as Indians. Accordingly, persons who are entitled to such registration, but who have not been so registered, would be included within the meaning of the term "Indian" and as such may benefit from the provisions of the Indian Act. That is, it is the date of the entitlement to be registered and not the date of registration itself that is relevant for purposes of the exemption provided in paragraph 81(1)(a) of the Act and section 87 of the Indian Act.

2.See above.

                                         		5-970673
XXXXXXXXXX		                                     M. Azzi

June 26, 1997

Dear Madam:

Re: Indian Status

This is in reply to your letter of March 3, 1997, wherein you requested our views on the tax treatment of individuals claiming Indian status and that we provide you with references to applicable legislation. We also acknowledge our telephone conversation of March 17, 1997 (Azzi/XXXXXXXXXX).

You indicate that, after researching their family history, certain individuals have discovered that they qualify for registration as Indians under the Indian Act and have registered as such with the Department of Indian Affairs and Northern Development. You therefore enquire whether certain employment income received by such individuals, prior to their registration as status Indians, can qualify for the tax exemption provided to Indians and, if yes, how far back can they request adjustments to their tax returns.

Our Comments

Paragraph 81(1)(a) of the Income Tax Act (the "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.

In determining where the employment income of a status Indian is "situated", prior to the Williams case (92 DTC 6320), direction was provided by the Nowegijick case (83 DTC 5041), when it found that the situs of the debtor determined whether income was situated on a reserve and, therefore, exempt from taxation. In Williams, however, the Supreme Court of Canada rejected the situs of the debtor test as the sole test for determining whether personal property of an Indian was situated on a reserve, indicating that "an overly rigid test which identified one or two factors as having controlling force...would be open to manipulation and abuse". The approach adopted in Williams requires the examination of all factors connecting income to a reserve 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 "Indian", as used in the Guidelines, is defined on page 10 of the Guidelines to mean "an Indian as defined for purposes of the Indian Act". Subsection 2(1) of the Indian Act defines an "Indian" as "a person who pursuant to this Act is registered as an Indian or is entitled to be registered as an Indian", while sections 6 and 7 of the Indian Act describe persons who are, and persons who are not, entitled to be registered as Indians. Accordingly, in our view, persons who are entitled to such registration, but who have not been so registered, would be included within the meaning of the term "Indian" and as such may benefit from the provisions of the Indian Act. That is, it is the date of the entitlement to be registered and not the date of registration itself that is relevant for purposes of the exemption provided in paragraph 81(1)(a) of the Act and section 87 of the Indian Act. The onus of proving "entitlement" to registration is on the individual.

An example of a situation where a person is "entitled to be registered" as an Indian, but had not applied to be registered as such, is contained in R. v. Pritchard (1973), 9 C.C.C. (2d) 488, 32 D.L.R. (3d) 617. In that case, a person was arrested for hunting during the closed season. He gave evidence that he was entitled to be registered having met the requirements of the Indian Act, and could actually be registered if he chose to apply. The Saskatchewan District Court found that he was not guilty of the offense because he was "entitled to be registered" and was therefore an Indian within the meaning of the Indian Act.

We understand that, in previous correspondence with this Department, you had enquired as to the implications of Bill C-31, which provided for the reinstatement of eligibility of certain persons to registration as Indians. In this respect, we wish to note that section 24 of Bill C-31 provides that, with the exception of sections 17 and 18, this legislation shall come into force or be deemed to have come into force on April 17, 1985. Accordingly, the date of entitlement would be April 17, 1985 for most persons relying on the amendments contained in Bill C-31 alone, and not on the Indian Act prior to these amendments, to establish their status. It is also noted that there may be cases where the effective date may be later. For example, paragraph 6(1)(b) of the Indian Act, which relates to new bands, is somewhat narrower in its application than the other paragraphs contained in section 6 and a person relying on paragraph (b) could not come within the definition of "Indian" until the body of which he is a member has been declared to be a band.

As regards to your concerns relating to adjustments to past tax returns, please note that, as a general rule, the Department is authorized to make adjustments to an assessment within 3 years from the date of the original assessment, by virtue of subsection 152(4) of the Act. However, pursuant to subsections 152(4.2) and 164(1.5), enacted in 1991, the Department may issue reassessments and refunds to individuals beyond this 3 year period, and for taxation years dating back to 1985, as outlined in Information Circular 92-3 (enclosed). A request for an adjustment to a particular assessment should be addressed to the Enquiries and Adjustments Division of the relevant Tax Centre, which has the responsibility of determining the tax consequences of completed transactions and their implications to specific taxpayers. The request must include all relevant documents to support the claim, such as documentation to support when the person became entitled to be registered as an Indian and, for each particular year an adjustment is being requested, documents to support where the Indian lived, where the employer resided, where the Indian performed the employment duties, and the percentage of the duties performed at each particular location (the name of any relevant reserve should also be provided).

It should also be noted that, as a general rule, the Department does not normally reassess on the basis of a court decision, since this would require a retroactive application of the court decision. Therefore, the Guidelines noted above (which are based on the Williams case) are relevant for taxation years after 1991; however, the Department provided a transition period to December 31, 1994 to allow those who were negatively affected sufficient time to become aware of the implications of the Guidelines and to rearrange their affairs if necessary (this transition period, which was provided for in remission orders, originally applied to 1992 and 1993, but was subsequently extended to December 31, 1994 for arrangements already in place at December 31, 1993). As indicated above, prior to Williams, that is for years prior to 1992, the views provided in Nowegijick applied. However, remission orders also applied from 1983 to 1992 to remit income tax in respect of employment income of an Indian that was attributable to the Indian's duties performed on a reserve. An application for a remission of income tax under the applicable remission order should also be addressed to the Enquiries and Adjustments Division of the relevant Tax Centre.

Finally, we wish to note that, from the information provided, it is unclear whether the "leased land", referred to in your example, qualifies as a reserve for purposes of the exemption. 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."

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