5 May 1999 External T.I. 9908345 - STATUS INDIAN, EXEMPT EMPLOYMENT INCOME

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 the taxpayer’s employment income is exempt under the Indian Act and paragraph 81(1)(a) of the Income Tax Act.

Position: Application of Indian Act Exemption Guidelines.

Reasons: Not enough information to determine if employee meets the conditions set out in the Guidelines.

XXXXXXXXXX 	G. Moore
		990834
May 5, 1999

Dear XXXXXXXXXX:

Re: Taxation Status of Status Indian Employees

This is in reply to your correspondence of March 26, 1999, in which you requested our comments regarding the taxation of your employment income received as a status Indian employee.

As we understand the situation, you are employed by the Department of Indian Affairs and Northern Development (“DIAND”) and you are a registered Indian within the meaning of the Indian Act. In your role as XXXXXXXXXX at DIAND, you indicate that you spend 100% of your time assisting DIAND in fulfilling its mandate to First Nations People and, in performing your duties, you are required to work directly with First Nations issues and correspondence. You are requesting a partial exemption (XXXXXXXXXX).

Our Comments

Written confirmation of the consequences inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.

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 the case of Williams v. The Queen, 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 can be used to determine whether employment income is situated on a reserve. With a view to assisting the Indian community, the Department developed the Indian Act Exemption for Employment Income Guidelines (“the Guidelines”), incorporating the various connecting factors that describe the employment situations covered by the Indian Act.

Guideline 1 would apply to exempt all of the income of an Indian if at least 90% of the employment duties are performed on a reserve. When less than 90% of the duties are performed on a reserve and none of the other guidelines apply, only the portion that is performed on a reserve is exempt (the proration rule).

Guideline 2 would apply to exempt the employment income of employees who live on a reserve provided that the employer is in fact resident on a reserve.

Guideline 3 would apply to exempt all of the income of an Indian if more than 50% of the employment duties are performed on a reserve and the employer is resident on a reserve or the Indian lives on a reserve.

Guideline 4 requires that the employer is resident on a reserve. It also requires that the employer is an Indian band which has a reserve, or a tribal council representing one or more Indian bands which have reserves, 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 that the duties of the employment are 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. These elements must all be satisfied in order for Guideline 4 to apply.

Based on the information you have provided us, it is not clear whether any of your employment duties were performed on a reserve for the taxation years in question. If none of your employment duties were performed on a reserve for those years, Guideline 3 and Guideline 1 and its proration rule would not apply. In addition, it appears that Guidelines 2 and 4 would not apply as DIAND is not an employer resident on a reserve nor, for Guideline 4, is DIAND an Indian organization, as described. Accordingly, in our view, if none of the above-mentioned Guidelines apply to your situation, your employment income for the years in question would be taxable. If you require further assistance in determining whether the Guidelines are applicable to your case for those years, you should contact your local taxation services office.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert, C.A.

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

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