11 May 1998 External T.I. 9724325 - BUSINESS INCOME EARNED BY STATUS INDIAN

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: TAXATION OF INCOME OF SELF-EMPLOYED INDIAN

Position: GENERAL COMMENTS BUT LIKELY TAXABLE

Reasons: WORK CARRIED ON OFF RESERVE

		972432
XXXXXXXXXX 	D. Duff
(613) 957-8953

May 11, 1998

Dear XXXXXXXXXX:

Re: Business Income Earned by Status Indian

This is in reply to your request to the Sudbury Tax Services Office for the Department’s position on the taxation of business income earned by an Indian. It is our understanding that in 1993 you were a status Indian, you had a business address on a reserve but you worked off the reserve.

Our Comments

The determination of whether your 1993 income is exempt from tax pursuant to section 87 of the Indian Act is a question of fact which should be determined by your local tax services office, however we can make the following general comments.

Section 87 of the Indian Act, along with paragraph 81(1)(a) of the Income Tax Act (the "Act"), establish the Indian exemption from taxation. Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve, and the courts have previously concluded that the reference to personal property in section 87 includes income. In determining whether income is situated on a reserve, the approach taken by the Supreme Court in the case of Williams must be followed. The proper approach to determining the situs of personal property is to evaluate the various connecting factors that tie the property to one location or another. The Supreme Court indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian to personal property situated on a reserve.

One significant factor that serves to connect business income to a location on or off reserve is the location where the revenue-generating activities of the business are undertaken. Another significant factor is the location of the business customers. In a situation where all of an Indian’s business income is derived from activities carried on off reserve for customers located off reserve, the business income would generally not be exempt from taxation. If a portion of the business activities are carried out on reserve, a similar portion of the business income would generally be exempt. While there may be some administrative activities carried out on reserve, it is our view that the actual revenue generating activities would be more significant in determining whether business income is connected to a reserve. For example, if a bookkeeper was employed to maintain the books and records in an on reserve office of a self-employed Indian who performed all of the actual revenue-generating activities off reserve, the business income would be more connected to a location off reserve than it would be to a location on reserve.

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

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