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 the income earned by Indians from mutual funds will be exempt from tax.
Position: No.
Reasons:
The income will be earned in the commercial mainstream, not on a reserve.
XXXXXXXXXX 971927
Attention: XXXXXXXXXX
July 17, 1997
Dear Sirs:
Re: Investment Income of Indians
This is in reply to your request of July 15, 1997 for information regarding a specific advance income tax ruling which you understand we issued for "XXXXXXXXXX" in 1995 or 1996 which concerned a possible tax exemption for Indians investing in mutual funds. We acknowledge our conversation (Brooks/XXXXXXXXXX) of July 16, 1997.
Advance income tax rulings are issued with respect to proposed transactions of identified taxpayers. Since such rulings are confidential documents, we are not able to release them to the public nor even confirm their existence. In 1996, the Department began releasing copies of rulings from which confidential information has been removed. However, for rulings issued prior to 1996, such sanitized rulings are not available to the public. For your information, we have not released any sanitized rulings concerning the investment by Indians in mutual funds.
According to section 87 of the Indian Act, the personal property of an Indian situated on reserve is exempt from taxation. The issue of the taxability of investment income was considered in the combined cases of Arnold, Laura and R. Mark Recalma v. Her Majesty the Queen, 96 DTC 1520, (1996) 3 CTC 2272 (TCC). In these cases, the taxpayers invested in bankers' acceptances and mutual funds, making their investments through a bank branch situated on a reserve. The taxpayers lived on reserve and earned exempt income. The Court observed that the property in question was an income stream from securities in the form of interest and not the securities themselves. The court also referred to the comments made by La Forest, J in the case of Mitchell v. Peguis Indian Band, (1990) 2 S.C.R. 85, that the purpose of the provisions of the Indian Act is not to give an economic advantage to Indians and that property held in the economic mainstream should be held on the same basis as all other Canadians. The court identified several connecting factors that could be relevant to determining the situs of investment income, and it was pointed out that the source of the capital used to buy the securities and the location of the bank branch where the securities were purchased are not as significant as other factors. The income stream from the bankers' acceptances and the managed funds was generated from companies that were located off reserve, and it was held that the investment income of the taxpayer was not personal property situated on a reserve. Rather, the income was earned in the economic mainstream and as such was taxable. Although the taxpayers have appealed this decision, the case stands for the principle that an Indian who invests in the commercial mainstream may not obtain the exemption from taxation that is found in the Indian Act.
We trust that our comments will be of assistance to you.
Yours truly,
R. Albert
A/Chief
Business, Property and Employment Section I
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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