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 employees working for XXXXXXXXXX (near but not on a reserve) located on land which was purchased by a band and leased to XXXXXXXXXX. Whether their employment income may be exempt from income tax.
(2) Whether employment income earned further to the implementation of an agreement (Memorandum of Understanding) between the Government of Canada and XXXXXXXXXX is property given under a treaty or agreement as understood in paragraph 90(1)(b) of the Indian Act.
Position:
(1) Exemption cannot be granted.
(2) Property not given under treaty or agreement.
Reasons:
(1) Land the title of which is not vested in Her Majesty does not meet the definition of a "reserve". Income earned on this land is therefore not personal property situated on a reserve.
(2) "Agreement" in paragraph 90(1)(b) of the Indian Act must relate to a treaty and to a settlement of land issue.
5-971548
XXXXXXXXXX P.-A. Sarrazin
November 17, 1997
Dear XXXXXXXXXX:
Re: Indian Act Exemption for Employment Income
This is in reply to your letters of June 5 and September 30, 1997, in which you requested that we provide our comments on the tax status of the XXXXXXXXXX Indian employees.
XXXXXXXXXX
It is also our understanding that the employees are Status Indians of XXXXXXXXXX, living on a reserve, and that most if not all of their duties will be performed at the XXXXXXXXXX.
XXXXXXXXXX
Until at least January 1997, the offices of the XXXXXXXXXX were physically located on reserve land, hence no deductions were made to the wages of the Indian employees because all their duties of employment were being performed on a reserve. However, once the offices were to be moved to XXXXXXXXXX, it was the intention of the employer to start deducting income tax at source on the wages earned because the duties of employment would then be performed off-reserve.
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. 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.
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 approach adopted by the Supreme Court of Canada in the case of Williams v. The Queen, 92 DTC 6320, requires the examination of all factors connecting income to a reserve to determine if the income is situated 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.
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". Therefore, land the title of which is not vested in Her Majesty does not satisfy the definition of a reserve. As you have noted, the land where the XXXXXXXXXX is located was purchased by the XXXXXXXXXX and is not a reserve.
Since most, if not all, of the employees' work will be performed at the XXXXXXXXXX, a property not situated on a reserve, Guidelines 1 and 3 will be inapplicable. The Proration Rule to Guideline 1 may apply to exempt a portion of the employment income for any duties of employment that are performed on reserve.
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. In our view, the Crown is not resident on a reserve, as concluded in the Horn case (89 DTC 147) and subsequently adopted in the Kirkness et al. case (91 DTC 905). Since XXXXXXXXXX does not reside on a reserve, the requirement that the employer be resident on a reserve will not be met and Guideline 2 will be inapplicable to this situation.
With regard to paragraph 90(1)(b) of the Indian Act, the Supreme Court of Canada held, in Mitchell v. Peguis Indian Band ((1990) 2 SCR 85), that the words "treaty" and "agreement" take colour from each other and that the use of the word "given" is a distinct and pointed reference to the process of cession of Indian lands. Thus, in our view, an agreement would have to be similar in nature to a treaty for the exemption to apply. The agreement would have to implement a treaty; that is, it must be an agreement which implements a treaty obligation. Furthermore, the property that was given must be related to the settlement of land issues. Therefore, it is our opinion that the Memorandum of Understanding referred to above does not constitute an "agreement" as understood in paragraph 90(1)(b) of the Indian Act. It follows that the employment income earned by the Status Indian employees of the XXXXXXXXXX will not be deemed by paragraph 90(1)(b) of the Indian Act to be situated on a reserve.
Consequently, in our opinion, the employment income earned by the XXXXXXXXXX will not constitute personal property of an Indian situated on a reserve and, accordingly, will not be exempt from income tax.
We trust that these comments will be of assistance.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Attachment
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