11 May 1998 External T.I. 9805585 - EXEMPT STATUS OF EMPLOYMENT INCOME OF 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: Is employment income of teacher off reserve exempt?

Position: No

Reasons: Does not meet any of the guidelines for exemption.

XXXXXXXXXX 980558
D. Duff
(613) 957-8953

Attention: XXXXXXXXXX

May 11, 1998

Dear XXXXXXXXXX:

Re: Income Tax Status of Employment Income of XXXXXXXXXX

This is in reply to your letter of March 2, 1998, requesting our opinion on the income tax status of the income of XXXXXXXXXX.

You stated that XXXXXXXXXX is a status Indian, a member of the XXXXXXXXXX and he resides on a reserve. He is a certified teacher and works for XXXXXXXXXX His job is to develop and deliver educational instruction programs to XXXXXXXXXX Indian children regarding Indian cultural and social subjects. These students primarily reside on the reserve. The School District pays XXXXXXXXXX from funds targeted for aboriginal purposes received from the provincial Department of Indian Affairs. XXXXXXXXXX belongs to the XXXXXXXXXX and has the same benefits as the other teachers in the school district.

Our Comments

We have reviewed the above situation and concluded that it does not meet any of the guidelines in Revenue Canada’s publication “Indian Act Exemption for Employment Income”(copy attached). Accordingly, in our view, XXXXXXXXXX employment income is taxable.

Guidelines 1 and 3, as well as the proration rule, of the Indian Act Exemption for Employment Income Guidelines provide for full or partial tax exemption of an Indian’s employment income if the employment duties are performed on a reserve. Since none of XXXXXXXXXX duties of employment are performed on a reserve, there is no exemption pursuant to guidelines one or three.

Guideline 2 provides for a full exemption of an Indian’s employment income if the employer is resident on a reserve and the Indian lives on a reserve. Although XXXXXXXXXX is resident on a reserve, the employer, XXXXXXXXXX, is not resident on a reserve, so regardless of XXXXXXXXXX place of residence, guideline 2 does not apply to exempt his employment income as both requirements of this guideline must be met in order to exempt employment income.

Pursuant to Guideline 4, the employment income earned by an Indian off reserve will be tax-exempt where the employer is resident on a reserve; the employer is an Indian band which has a reserve, 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 and dedicated exclusively to the social, cultural or economic development of Indians who for the most part live on reserves, and the employment duties are part of the employer’s non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserve. These elements must all be satisfied in order for Guideline 4 to apply. From the information submitted, it is XXXXXXXXXX that is the employer and it does not meet any of the aforementioned conditions. It is not resident on a reserve, nor is it an Indian band, a tribal council or an Indian organization as described above. It is also a question of fact as to whether the students satisfy the requirement of “Indians who for the most part live on reserves”. Accordingly, Guideline 4 does not apply to exempt XXXXXXXXXX income.

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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