8 December 1998 Ministerial Letter 9830918 - INDIAN EXEMPT GUIDELINE #1: MINIMUM

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: Indian employment income on reserve.

Position: Time on reserve close to nil, no exemption.

Reasons: Considered incidental, connection insufficient.

								December 8, 1998

	Client Services Directorate			HEADQUARTERS
	Ministerial Correspondence Division		D. Duff
	Richard Gendron					957-8953
	Manager

	Attention: Colleen Miller
								983091
	Insert for file: 98-06853M, XXXXXXXXXX 

This is in reply to your memorandum of November 25, 1998 requesting an insert for the aforementioned file. Our insert is as follows.

“You enclosed a letter from the Winnipeg Taxation Centre regarding your claim for the exemption of a status Indian’s employment income relating to duties performed on a reserve, and asked whether this is the Department’s policy and, if so, that it be reviewed.

This position is based on Guideline 1 of the Indian Act Exemption for Employment Income Guidelines issued in June, 1994. These Guidelines provide a method to determine when employment income is sufficiently connected to a reserve to be considered to be located there and, thus, exempt from tax. They were developed as a result of the decision by the Supreme Court of Canada in the 1992 case of Glenn Williams versus The Queen. Guideline 1 provides that where at least 90% of the duties of employment are performed on a reserve, all of the income will usually be exempt from income tax. Where less than 90% of the duties are performed on a reserve the exemption can be prorated, however, there still must be a sufficient connection to consider that part of the employment is situated on the reserve.

It will always be a question of fact as to whether income can be considered to be situated on a reserve but where one’s duties are always carried out in a certain location and one spends just some incidental time on a reserve there is not a strong connection to the reserve. The closer the amount of time spent on reserve is to nil, the greater the likelihood that the time spent on reserve is incidental and taxable. Where the time spent on reserve is minimal it is considered incidental and does not qualify for exemption. This is not a new position of the Department and, in our view, it is an appropriate interpretation of the Williams case.”

For your information, we would like to comment that, in our view, the manner in which the time on reserve is accumulated should also be taken into account in determining whether the amount of time on reserve is incidental. For instance, in this particular situation, the taxpayer generally spent 4% of his time, or two weeks of a year, on a reserve. Where the time on the reserve consists of irregular intervals of short amounts of time, we would likely consider the connection to be incidental and, therefore, the income would be fully taxable. However, where an employee is required to spend a certain block of time on the reserve, such as a two week period, or to visit the reserve on regular intervals, we could accept that there is a sufficient connection such that this portion of income would be situated on the reserve and, therefore, exempt.

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