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: Indians working off reserve
Position: business income likely taxable; employment may not be if employer is resident on reserve
Reasons: previous positions
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your correspondence of January 6, 1999, regarding the taxation of income from the harvesting of wood fibre by Aboriginal People of XXXXXXXXXX on provincial Crown lands.
It is unclear from your letter whether the Bands or individual Band members are undertaking the harvesting of wood fibre. In this regard, it is unclear whether you are concerned with the income of the Bands or income, either employment or business, of individual Indians involved in the harvesting.
A Band may be exempt from income tax on any income that it earns if the Band can be considered to be a public body performing a function of government or a Canadian municipality. Details regarding a particular Band and its functions would need to be considered to determine whether it may be considered to be exempt.
The Indian Act exempts from taxation the personal property of an Indian situated on a reserve. The courts have previously concluded that the term “personal property” includes income. In determining whether income is situated on a reserve, the approach taken by the Supreme Court in the case of Williams must be followed. The proper approach to determining situs of personal property is to evaluate the various connecting factors that tie the property to one location or another. The Supreme Court indicated that the ultimate question is to determine to what extent each connecting factor is relevant in establishing whether taxing the particular kind of property in a particular manner erodes the entitlement of an Indian to personal property situated on a reserve.
One significant factor that serves to connect business income to a location on- or off-reserve is the location where the revenue-generating activities of the business are undertaken. Another factor is the location of the business customers. In a situation where all of an Indian’s business income is derived from activities carried on off reserve for customers located off-reserve, the business income would generally not be exempt from taxation.
Employment income for duties performed off a reserve by an Indian living on reserve will normally be exempt where the employer is resident on-reserve, except where it can reasonably be considered that one of the main purposes for the existence of the employment relationship is to establish a connecting factor between the income in question and a reserve. In order for an organization to be considered resident on a reserve, the central management and control, or mind and management, over the organization would have to be exercised on a reserve. Where an organization holds its board of directors meetings on a reserve, it should generally be considered to satisfy the definition if management and control over the organization is legitimately exercised during those meetings.
The determination of whether an Indian’s income is exempt requires a review of all of the facts of a particular situation.
Although the Department is unable to discuss the affairs of a particular taxpayer without prior written authorization, should you wish to generally discuss these issues further, I suggest you contact XXXXXXXXXX.
I trust you will find my comments helpful.
Yours sincerely,
Bill McCloskey
Assistant Deputy Minister
Policy and Legislation Branch
D. Duff
957-2058
February 16, 1999
990232
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