23 June 1998 Internal T.I. 9812007 - INCOME EARNED ON METIS SETTLEMENTS BY 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 employment income of Indian working with Metis organizations

Position: income does not fit within the IndianAct Tax Exemption guidelines so is taxable

Reasons: does not fit within guidelines for exemption

		June 23, 1998

	XXXXXXXXXX  Tax Service Offoce	Headquarters
	Non-filer/Non-Registrant Section	N. Graham
		957-8953
	Attention:  XXXXXXXXXX
		981200

XXXXXXXXXX
Taxability of Employment at XXXXXXXXXX

We are writing in reply to your inquiry of May 4, 1998, requesting our views on the taxability of XXXXXXXXXX.

You have indicated that XXXXXXXXXX is a status Indian, living off-reserve.

XXXXXXXXXX

Specifically, in the submission of her representative, XXXXXXXXXX, they state on page 13 that “it is estimated that well in excess of 90 percent of the duties of XXXXXXXXXX are performed in an Aboriginal community. As well, the duties of XXXXXXXXXX are in connection with the XXXXXXXXXX non-commercial activities carried on exclusively for the benefit of Aboriginal people.”

Our Comments

Paragraph 81(1)(a) of the Income Tax Act (the “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 Supreme Court of Canada in Williams (92 DTC 6320) has directed that all factors connecting income to a reserve must be examined to determine if the income is located 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 describe the employment situations covered by the Indian Act. We have enclosed a copy of the Indian Act Exemption for Employment Income Guidelines (the “Guidelines”) that have been developed, for your reference.

XXXXXXXXXX must be an Indian as defined for the purposes of the Indian Act to be eligible for an exemption of her employment income under the Guidelines. Further, her circumstances must fit within one of the Guidelines.

Guideline 1 requires XXXXXXXXXX employment duties be performed on a reserve. The term ‘on a reserve’ is defined in the Guidelines to mean ‘on a reserve as defined for the purposes of the Indian Act, including any settlements deemed to be reserves for purposes of the Indian Settlements Remissions Order, and any other areas given similar treatment under federal legislation.’ Metis settlements are not reserves.

As an extension to Guideline 1, should some portion, but less than 90%, of her duties be performed on a reserve, this portion of her earnings may be exempted from tax under the Proration rule. Occasional employment related trips to a reserve, however, would not provide any exemption.

Based on the information submitted, XXXXXXXXXX employment income does not appear to have been earned on a reserve.

Guideline 2 is not met as XXXXXXXXXX does not live on a reserve.

Under Guideline 3, as discussed above, XXXXXXXXXX does not appear to perform more than 50% of her duties of employment on a reserve. Further, her employer must be resident on a reserve. The phrase “an 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 a reserve, is asserting that it satisfies the definition because it holds its board of directors meetings on a reserve, it should generally be considered to satisfy the definition where management and control over the organization is legitimately exercised during those meetings.

A review of all the facts surrounding a situation including a review of the minutes of the board of directors' meetings and resolutions or by-laws passed thereat would be required to conclusively resolve this question of fact. However, it would seem unlikely, given the facts presented, that the employer is resident on a reserve. Accordingly, Guideline 3 does not appear to apply.

Guideline 4 does not appear to apply. This Guideline requires:

• an employer resident on a reserve, and
• the employer be an Indian band....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
• duties of employment be 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.

In addition to the residency requirements of the employer discussed above, XXXXXXXXXX duties, within this Guideline, would have to be carried on exclusively for the benefit of Indians who for the most part live on reserves. The XXXXXXXXXX submission states

XXXXXXXXXX

Accordingly, the activities of the association do not appear to meet the requirement of Guideline 4, and no exemption can be provided under this Guideline.

From the information provided, in our view, XXXXXXXXXX employment income is not exempt under subsection 81(1)(a) of the Act. Should XXXXXXXXXX wish to make further representations to you regarding this matter we would be pleased to consult with you on them.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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