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. Whether certain non-reserve lands can be treated as reserve lands?
2. Whether 87(1)(a) of the Indian Act provides for tax exemption for income?
3. Did the 1985 amendment to the Indian Act prevent the Income Tax Act from applying thereafter to Indians?
4. Do Indians not have full exemption from tax on the basis that subsection 87(2) of the Indian Act states that "No Indian or band is subject to taxation"?
Position:
1. No.
2. No.
3. No.
4. No.
Reasons:
1. "Reserve" is defined in the Indian Act.
2. 87(1)(a) concerns the interest of an Indian (or band) in reserve or surrendered lands. The exemption for income is by virtue of 87(1)(b), which concerns only reserve lands.
3. The exemption, which is found in section 87 of the Indian Act, continues to apply as it did previous to 1985.
4. The exemption provided by subsection 87(2) relates only to property described in 87(1) of the Indian Act.
October 24, 1997
XXXXXXXXXX Tax Service Office HEADQUARTERS
J. D. Brooks
Attention: XXXXXXXXXX 957-2103
Special Projects
972782
XXXXXXXXXX
This is in reply to your request of October 8, 1997 to prepare a response, from an income tax perspective, to a submission from XXXXXXXXXX in which he claimed tax exemption. You submitted other documents describing the situation.
Our understanding of the facts is as follows:
1.XXXXXXXXXX is a registered Indian.
2.XXXXXXXXXX formerly operated a business, called XXXXXXXXXX, from a location on an Indian Reserve.
3.In XXXXXXXXXX, he opened an off-reserve XXXXXXXXXX.
4.XXXXXXXXXX moved XXXXXXXXXX to a location on reserve.
5. XXXXXXXXXX.
6.According to a written submission to the XXXXXXXXXX Tax Services Office:
(a) XXXXXXXXXX;
(b)He feels that paragraph 87(1)(a) of the Indian Act provides exemption for him from taxation of income connected to reserve lands or surrendered lands;
(c)He feels that the Income Tax Act has no application to him after 1985 since the Indian Act was updated in 1985; and
(d)He feels that subsection 87(2) of the Indian Act exempts Indians from taxation.
Our Views
The following two paragraphs can be used as an insert into your response:
"As to the application of the Income Tax Act, there was no change to the Indian Act in 1985 or any other year that would prevent an Indian from being taxed under the Income Tax Act. The Indian Act has been modified over the years, but the exemption currently provided by the Indian Act remains the same as it has been for many years.
Subsection 87(2) of the Indian Act provides for an exemption from taxation for an Indian or band, but the exemption applies only with respect to property described in subsection 87(1). We point out that paragraph 87(1)(a) provides for an exemption from taxation of the interest of an Indian or a band in reserve or surrendered lands. However, the fact situation does not concern taxation of an interest, or a disposition of an interest, in reserve or surrendered lands. Rather, the issue concerns the taxability of income earned from a business operated by an Indian. Such income is exempt from taxation only if the income constitutes the personal property of an Indian situated on a reserve, as provided by paragraph 87(1)(b) of the Indian Act. The courts have adopted the view that income may be situated on a reserve if it is connected to a reserve; however, there is no exemption available if the income is connected to non-reserve lands."
We provide the following additional comments for your information. It is a question of fact as to whether the lands from which XXXXXXXXXX operated during the period in question are part of a reserve as defined in the Indian Act. It appears that you have concluded that the lands are not part of a reserve. Furthermore, from the words used by XXXXXXXXXX in his submission, it appears that he too acknowledges that the lands are not part of the recognized reserve lands of XXXXXXXXXX. Thus, we have not explored this factual matter. Our only comment in this matter is that the term "reserve" in the Indian Act does not include surrendered lands.
We also attach for your information a copy of two letters which we have authored on the issue of the status of XXXXXXXXXX.
Lastly, in consideration of the fact that the business was moved to a location on reserve in 1996, we point out that the operation of a business from a reserve does not necessarily result in the income generated therefrom being fully exempt from income taxation. The type of business, the location of the business activities and the location of the customers of the business would be factors to consider in determining the extent of tax exemption.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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