2 March 1999 Internal T.I. 9904837 - INDIAN ACT EXEMPTION MEDICAL DRIVERS

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 the business income of a status Indian from a medical transportation service exempt from taxation?

Position: In this factual situation, the business income is exempt.

Reasons: The medical trips originate from and return to the reserve; the trips are coordinated and arranged on reserve and involve on reserve residents.

		March 2, 1999

XXXXXXXXXX Tax Services Office HEADQUARTERS
Verification & Enforcement R. Albert
Division 957-8953
Attention: XXXXXXXXXX
7-990483

Status Indian Medical Drivers

We are responding to your request of February 19, 1999 for our comments regarding a particular fact situation involving status Indian medical drivers.

Facts

The 1998 budget announced contract reporting requirements to improve tax compliance. Accordingly, federal departments and agencies must prepare T4A supplementary slips for individuals and businesses engaged through contracts for services. As a result of these new requirements, Health Canada’s regional office in XXXXXXXXXX requested clarification as to whether they should be issuing T4A’s to medical drivers who are paid on a “fee for service basis” by XXXXXXXXXX.

In the XXXXXXXXXX region, the on-reserve medical transportation has been done by individuals on the reserve who Health Canada (HC) classify as medical drivers. HC does not consider these to be commercial taxis as such since their function is to transport on-reserve residents from the reserve to medical/dental facilities. The XXXXXXXXXX TSO issued a XXXXXXXXXX ruling to XXXXXXXXXX indicating that the work done by the medical drivers could not be considered as insurable employment as the medical drivers were not employees performing services under a contract of service. Accordingly, the medical drivers are considered to be self-employed.

You have also indicated that:

• the medical drivers are status Indians who reside on the reserve and that they either drive the vehicles themselves or contract other Indians to operate the vehicles.
• they drive other status Indians from the reserve to a medical facility and then back to the reserve. Waiting time at the medical facility is paid at an hourly rate established by XXXXXXXXXX.
• The medical drivers own their vehicles and are responsible for their own operating costs.
• The drivers are reimbursed according to a fee schedule and a set of terms and conditions determined by XXXXXXXXXX.
• Medical drivers submit monthly claim forms for medical transportation to XXXXXXXXXX which are then audited by the Non-Insured Health Benefit Unit. A cheque for the services is processed by Health Canada’s Finance Department and then issued to the medical driver.
• The coordination and arrangement of the driving service is performed on the reserve.

Your comments

The Federal Court of Appeal case of Henry Southwind v The Queen, 98 DTC 6084, supports the contention that the location of the business activities and customers are the most significant factors when determining whether the income of a business carried on by an Indian is connected with a reserve. In this case, the activities are transportation services which are conducted mostly off reserve but which originate from and return to the same reserve after the medical appointment has been completed. The customers are individual status Indians who are on reserve and who are covered by the health services provided by XXXXXXXXXX. Transportation to and from the medical facility is one of the services provided. In your view, the drivers are “...engaged in a business that is integral to the life of the reserve...” and any income that is derived from these business activities should be exempt from taxation.

Our comments

Southwind is the leading case dealing with the business income of Indians. The case concerned income earned from logging, where a status Indian lived on reserve and said that he had an office on reserve. However, all his income earning activities were carried out off reserve and his sole customer was off reserve. The Federal Court of Appeal confirmed the Tax Court decision that his income from the logging activity was taxable. In reaching its decision, the Court used two main connecting factors, namely the location where the services were performed and the location of the sole customer of the Indian.

In our view, one significant factor that serves to connect business income to a location on reserve or off reserve is the location where the activities are carried out. Other significant connecting factors would be the location of the customers of the business, as well as, in the case of a transportation service business, the location of the origin and the destination of trips. In this particular situation, where medical trips involving the transportation of reserve residents originate from and return to a reserve under a service coordinated and arranged on reserve, we agree with your view that the business income generated from supplying such a service should be exempt from taxation. We maintain this view regardless if the payments are made directly to the drivers by the XXXXXXXXXX or indirectly to the drivers from an intermediary band.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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