20 November 1997 External T.I. 9723365 - INDIAN ACT EXEMPTION - GUIDELINE 4

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 working for an Indian Organization which is resident off-reserve. Whether qualifies for Guideline exemption; whether any Indian Remission Order applicable to his case.

Position:

(1) Guideline 4 exemption cannot be granted; general explanations on Indian Remission Orders given.

Reasons:

(1) Guideline 4 requires the Indian Organization to be resident on a reserve.

									5-972336
XXXXXXXXXX							P.-A. Sarrazin

November 20, 1997

Dear XXXXXXXXXX:

Re: Aboriginal Income Tax Retrieve

This is in reply to your request of September 2, 1997, for our comments on what you originally thought was called a "Retrieve Program". You later verbally confirmed (XXXXXXXXXX/Sarrazin) that you were referring to a Remission Order instead of a "Retrieve Program".

In your request, you mention that you are and have been employed by XXXXXXXXXX. To our understanding, this employer's residence is not situated on a reserve, and your duties of employment are not performed on a reserve.

You wish to find out whether your income can be exempt from tax in any way and whether any Remission Order is applicable to your situation.

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. 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.

Based on the information provided in your letter, we have considered your situation in the context of Guideline 4. Please note that Guideline 4 requires a) that the employer is resident on a reserve; b) 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 c) 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. These elements must all be satisfied in order for Guideline 4 to apply.

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. The central management and control of an organization is usually considered to be exercised by the group that performs the function of a board of directors of the organization. However, it may be that the real management and control of an organization is exercised by some other person or group. Generally, management and control is exercised at the principal place of business, but it is recognized that this function may be legitimately exercised in a place other than the principal administrative office of the organization. Where an organization, which would otherwise not be considered to be resident on reserve, is asserting that it satisfies the definition because it holds its board of directors meetings on reserve, it should generally be considered to satisfy the definition where management and control over the organization is legitimately exercised during those meetings. Assuming that the central management and control of XXXXXXXXXX is not located on a reserve, the requirement that the employer be resident on a reserve would not be met.

XXXXXXXXXX is not an Indian band nor a tribal council; consequently, in order for the second requirement of Guideline 4 to be satisfied, XXXXXXXXXX would have to be an Indian organization controlled by one or more Indian bands which have reserves or tribal councils representing one or more Indian bands which have reserves. The concept of control in Guideline 4 is the kind that exists where there is power to command and direct. Where a band or tribal council can replace the directors of an organization, the band or tribal council could be said to control the organization. The facts presented do not indicate whether the election of the board of directors of XXXXXXXXXX is undertaken in such a manner that bands or tribal councils control XXXXXXXXXX.

The intention of the word "exclusively" is to restrict Guideline 4 to those organizations which are dedicated only to the social, cultural, educational or economic development of Indians living on reserve. It would not be sufficient to have these being only part of an organization's objectives. Guideline 4 is a generous interpretation of the direction provided by the Courts in Williams, so it is appropriate to restrict its application to situations that fit squarely within it. It is not possible for us to make that determination from the information provided in your letter, nor is it clear whether almost all of the Indians served by XXXXXXXXXX must live on reserve.

Your employment duties would also have to be considered to determine, in accordance with the third requirement of Guideline 4, whether they were 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. While XXXXXXXXXX may have a non-profit mandate, this does not necessarily mean that all of its activities are non-commercial.

It is a question of fact as to whether the particular requirements of a Guideline have been satisfied, and local Tax Services Offices are better able to resolve questions of fact. With additional information, you may wish to contact the Vancouver Tax Services Office in order to review your situation. You can reach them at 689-5411 or 1-800-663-9033 when calling from northwestern British Columbia, or write them at: 1166 West Pender Street, Vancouver, British Columbia, V6E 3H8.

As regards remission orders which may be applicable in your case, the Indian Remission Order, and its amendments, generally apply to remit taxes on income from office or employment earned with respect to duties performed on a reserve, and certain related payments, from 1983 until 1992. The Indian Income Tax Remission Order, and its amendment, allow those who may be negatively affected by the Guidelines sufficient time to rearrange their affairs, if necessary, and apply to remit taxes on certain employment income received by Indians in 1992, 1993 and 1994 from employers residing on a reserve or Indian settlement.

Since your duties of employment are performed off-reserve and your employer also resides off-reserve, neither the Indian Remission Order nor the Indian Income Tax Remission Order, nor their respective amendments, are applicable to your situation.

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

c.c. Vancouver TSO
Surrey Tax Centre