17 November 1998 External T.I. 9816755 - INDIAN ACT INCOME 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 salary paid by DIAND deemed situated on reserve per 90(1)(a) of Indian Act.

Position: No.

Reasons: Wages are not the personal property being purchased.

XXXXXXXXXX 	D. Duff
		981675
November 17, 1998

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

Your correspondence of June 18, 1998 to the Ottawa Tax Services Office regarding XXXXXXXXXX was forwarded to us for reply.

XXXXXXXXX

You referred to Guideline 1 of Revenue Canada’s Indian Act Exemption for Employment Income Guidelines (copy enclosed), which exempts an Indian’s employment income from taxation when at least 90% of the duties of employment are performed on a reserve. You also referred to subsection 90(1) of the Indian Act which provides that, for the purpose of section 87 of the Indian Act, “...personal property that was (a) purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands... shall be deemed always to be situated on a reserve.” Section 87 of the Indian Act provides that the personal property of an Indian situated on a reserve is exempt from taxation. It is your argument that since DIAND receives its funding to assist Indians, presumably through appropriations by Parliament, then XXXXXXXXXX employment income would be deemed by virtue of subsection 90(1) of the Indian Act to always be situated on a reserve.

Our comments.

The Department’s aforementioned Guidelines were developed to assist in determining when employment income is situated on a reserve and, consequently, exempt from taxation. The requirement in Guideline 1 that 90% of the employment duties be performed on a reserve means that the physical performance of the duties must be on a reserve.

The provisions in subsection 90(1) of the Indian Act cannot be used to deem such duties to be performed on a reserve. We do not consider the salaries paid to the employees to be personal property purchased by Her Majesty as referred to in subsection 90(1) of the Indian Act. This issue was addressed in the case of Kahn-Tineta Horn (89 DTC 147), wherein the taxpayer argued that her salary was exempt by virtue of paragraph 90(1)(a) of the Indian Act because it was her skills, training and background that were purchased by the Crown with moneys appropriated by Parliament for the use and benefit of Indians or bands, and which is deemed to be always situated on a reserve. The court dismissed the argument citing the case of The National Indian Brotherhood (78 DTC 6488) which stated “... it is not possible to regard the salaries here in question as personal property that was purchased by Her Majesty within the meaning of paragraph 90(1)(a)...”. Also the court stated that wages were paid not purchased.

In order for the employment income to be exempt, it must meet one of the criteria in the Guidelines. Also, we would like to point out that when less than 90% of the duties of employment are performed on a reserve the exemption in Guideline 1 can be prorated.

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

cc Gaston Chatelaine
Client Services Divisions
Ottawa Tax Services Office

(enclosures)
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