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. Status Indian employee (programmer) of the Federal Government participates in the Telework Program: Are the employment duties he performs at his on-reserve home, under the telework arrangement, considered to be performed on a reserve for purposes of the Guidelines?
2. Is standby time and overtime considered to be performed on or off reserve?
Position TAKEN:
1. Generally, yes.
2. Standby time (i.e, time during which an employee was required to be available for work, but was not requested to work) should not be taken into consideration in establishing the percentage of employment duties performed on or off reserve. Overtime should be allocated to the location at which the overtime duties were performed.
Reasons FOR POSITION TAKEN:
1. For purposes of the Guidelines that take into consideration the location where the duties of employment are performed, the most relevant locations are the locations at which the employee is required to perform the duties (position taken in other files). Although participation in the Telework Program may be voluntary, the terms and conditions set out in an agreement to work at home are binding on the parties to the agreement until such time as the agreement is terminated. This position is consistent with our views on the deductibility of employment-related expenses incurred by employees participating in the Telework Program.
The memorandum submitted to the taxpayer by his employer, and outlining the telework arrangement, clearly states "You are required to adhere to the conditions of this arrangement for its duration". One of the conditions is that the taxpayer "will work at" his teleworkplace (i.e., his home) during specific days of the week, while he "will work at" his official workplace (i.e., his employer's office) the remaining days of the week. The term "teleworkplace", as defined on page 10 of the Treasury Board document entitled Telework Pilot Program in the Public Service, is "the location at which the employee and the employer have mutually agreed the employee will telework".
However, the Guidelines are not intended to apply when it can reasonably be considered that one of the main purposes for the existence of an employment relationship is to establish a connecting factor between the income in question and a reserve, and there may be unusual circumstances where employment income will be taxable even though it appears to fall within one of the Guidelines. In establishing whether one of the main purpose of this telework arrangement is to create a connecting factor to a reserve, consider whether any of the other programmers of this employer participate in the Telework Program.
2. Standby time is not related to a specific location on or off reserve. Similarly, our position (in other files) is that vacation leave, sick leave and statutory holidays should not be taken into consideration in establishing the percentage of employment duties performed on or off reserve, regardless of whether the leave or holidays were taken on or off reserve. If, however, the Indian employee is requested to work while on standby, the time spent performing such employment duties will be allocated to (i.e., is connected to) the location where the duties are performed (same position as overtime).
September 4, 1997
Client Services Directorate HEADQUARTERS
Individual Programs Section M. Azzi
957-8953
Attention: Joanne Ahearn
7-970686
XXXXXXXXXX - Employment Income of a
Status Indian under the Telework Program
This is in reply to your memo of March 11, 1997, wherein you requested our views on the tax treatment of employment income received by the above-noted status Indian while participating in the Telework Program of the Federal Government.
Our understanding of the facts is as follows:
1. The taxpayer lives on the XXXXXXXXXX Indian reserve on XXXXXXXXXX and is employed full time by XXXXXXXXXX.
2. The taxpayer has participated in the Telework Program since XXXXXXXXXX, such that part of his employment duties have been performed at his employer's office in XXXXXXXXXX and part have been performed out of the taxpayer's home on reserve.
3. The telework arrangement provided that the taxpayer work XXXXXXXXXX The taxpayer also received standby pay and performed a certain amount of overtime duties from his home in XXXXXXXXXX. The taxpayer claims that the standby and overtime, combined with his telework arrangement, resulted in slightly more than XXXXXXXXXX% of his employment duties being performed on a reserve in XXXXXXXXXX. Consequently, the taxpayer claimed a tax exemption on all of his employment income for XXXXXXXXXX under Guideline 3 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines").
4. The telework arrangement of XXXXXXXXXX was maintained throughout XXXXXXXXXX. The taxpayer claims that this arrangement, combined with his standby pay and certain overtime duties, result in XXXXXXXXXX% of his duties being performed on reserve in XXXXXXXXXX.
As you are aware, 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 Guidelines, incorporating the various connecting factors that describe the employment situations covered by the Indian Act.
While the Guidelines themselves do not make any specific reference to the location where an employee is required to work, all of the examples published with the Guidelines contemplate situations where the employee is working at a location determined by the employer. That is, for purposes of the Guidelines that take into consideration the location where the duties of employment are performed, in our view, the most relevant locations are the locations at which the employee is required to perform the duties.
Although participation in the Telework Program may be voluntary, it is our view that the terms and conditions set out in an agreement to work at home are binding on the parties to the agreement until such time as the agreement is terminated. (We have attached copies of several previous pieces of correspondence issued by the Rulings Directorate on this issue.) In this respect, we note that the memorandum submitted to the above-noted taxpayer by his employer (the "Telework Memorandum"), and outlining the telework arrangement, clearly states "You are required to adhere to the conditions of this arrangement for its duration". One of the conditions is that the taxpayer "will work at" his teleworkplace (i.e., his home) during specific days of the week, while he "will work at" his official workplace (i.e., his employer's office) the remaining days of the week. The term "teleworkplace", as defined on page 10 of the Treasury Board document entitled Telework Pilot Program in the Public Service, is "the location at which the employee and the employer have mutually agreed the employee will telework". Thus, in our view, while participating in the telework arrangement outlined in the Telework Memorandum, and until such a time as this agreement is terminated, the employment duties performed by the above-noted taxpayer at his on-reserve home, and pursuant to the terms of the agreement, are considered employment duties performed on a reserve for purposes of the Guidelines. As noted in your memo, this position is consistent with our views on the deductibility of employment-related expenses incurred by employees participating in the Telework Program. It is also consistent with the statement on page 26 of Telework Pilot Program in the Public Service that "Although telework is voluntary, employees who accept the arrangement are required to provide a suitable place of work in their homes, and are responsible for the additional costs involved in providing the work space".
However, it should also be noted that, in our view, standby time (i.e, time during which an employee was required to be available for work, but was not requested to work) is not considered to be related to a specific location on or off reserve and should therefore not be taken into consideration in establishing the percentage of employment duties performed on or off reserve. Similarly, vacation leave, sick leave and statutory holidays should not be taken into consideration in establishing the percentage of employment duties performed on or off reserve, regardless of whether the leave or holidays were taken on or off reserve. For example, if during a year a status Indian works on reserve 110 days, works off reserve 125 days (for a total of 235 days worked), is on standby 15 days and takes 25 days off for vacation, sick leave and statutory holidays, the Indian will have performed 46.8% (110/235) of his employment duties on reserve. In this example, in applying the Proration Rule to Guideline 1 (assuming that none of the other Guidelines apply) the employment income received in respect of standby, vacation, sick leave and statutory holidays would then be allocated 46.8% on reserve and 53.2% off reserve.
If, however, the Indian employee is requested to work while on standby, the time spent performing such employment duties will be allocated to the location where the duties are performed, in establishing the percentage of employment duties performed on or off reserve. Similarly, in our view, overtime should be allocated to the location at which the overtime duties were performed.
As the above-noted taxpayer seems to have included his standby time as duties performed on reserve, we suggest that the percentage of duties performed on and off reserve be recomputed as explained above, in order to ensure that the taxpayer does in fact qualify under Guideline 3.
Finally, as indicated in the Guidelines, and noted in your memo, the Guidelines are not intended to apply when it can reasonably be considered that one of the main purposes for the existence of an employment relationship is to establish a connecting factor between the income in question and a reserve, and there may be unusual circumstances where employment income will be taxable even though it appears to fall within one of the Guidelines. However, we do not share your view that because telework arrangements must be initiated by an employee, the existence of one where 50% of duties must be carried out on reserve, automatically confirms that the main reason for the arrangement is to establish such a connection. There are many reasons for entering into telework arrangements, and we would expect that most employees who telework would want to "principally" (i.e., more than 50% of the time) perform their employment duties at home, in order to be able to deduct work space in the home expenses, by virtue of subparagraph 8(13)(a)(i) of the Act. In establishing whether one of the main purposes of the above-described telework arrangement is to create a connecting factor to a reserve, you may wish to obtain more facts including information on whether any of the other programmers of the above-noted employer participate in the Telework Program.
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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