3 March 1998 External T.I. 9724025 - INDIAN ACT EXEMPTION

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 a portion of the employment income of an Indian for the retroactive period he was not working should be exempt from tax.

Position:

Yes

Reasons:

Throughout the years that the Indian was employed by the employer, his income was determined to be 50% exempt from tax since he performed 50% of his employment duties on reserve. Had he performed services during the retroactive period, those services would have similarly been 50% exempt.

5-972402

XXXXXXXXXX Karen Power, C.A.

Attention: XXXXXXXXXX

March 3, 1998

Dear Sirs:

Re: XXXXXXXXXX

We are writing in response to your letter of August 29, 1997 wherein you requested our opinion regarding the extent to which the reinstatement income of XXXXXXXXXX, should be exempt from tax. We apologize for the delay in replying.

It is your view that all of the income XXXXXXXXXX received with respect to the reinstatement period should be exempt from tax, as he was at home on the reservation during that period.

Our Comments

Our views, remain consistent with those expressed in our letter written to XXXXXXXXXX (file #961436) on this same matter. The Indian Act Exemption for Employment Income Guideline (the "Guidelines") issued by the Department in June of 1994, provides for the exemption of employment income to the extent the employment duties are performed on a reserve.

During the years preceding the reinstatement period, 50% of XXXXXXXXXX income was exempt from tax, as he performed about 50% of his employment duties on reserve. As outlined in our file #961436, in determining to what extent the reinstatement income should be exempt from tax, we have considered what XXXXXXXXXX employment duties would have been, if he had not been dismissed throughout the period. We believe our suggestion of applying the 50% proration percentage as in prior years, for the income XXXXXXXXXX received with respect to the reinstatement period, was a liberal interpretation of the Guidelines. A somewhat similar issue was involved in the Kahn-Tineta Horn case (89 DTC 147) wherein it was held that receiving vacation or sick pay while residing on a Reserve does not site the income on a Reserve. We may have argued, that during the period of XXXXXXXXXX was dismissed from his duties of employment, and consequently did not perform any employment duties on a reserve. Under such a scenario, the Guidelines would not apply to exempt any of the reinstatement income.

In our view, maintaining the 50% proration rule on the reinstatement income is a fair and consistent treatment afforded XXXXXXXXXX.

We trust our comments will be of assistance to you.

Roberta Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch