23 December 1999 External T.I. 9929415 - INDIAN ACT EXEMP. FOR EMPLOY. 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:

1. Whether status Indian RCMP member's are exempt from income tax pursuant to section 81(1)(a).

2. Is travel time to and from a reserve included as time spent working on reserve?

Position:

1. May be exempt.

2. No.

Reasons:

1. If a status Indian RCMP member lives on reserve and performs more than 50% of his employment duties on reserve, guideline 3 would apply to exempt his employment income.

2. In calculating the time spent performing employment duties on a reserve, travel time to and from the reserve is not included.

Claude Levesque
Human Resources Directorate
Headquarters RCMP, Ottawa 5-992941
1200 Vanier Karen Power, CA
Room 650, Pickering Building (613) 957-8953
Ottawa ON K1A 0R2

December 23, 1999

Dear Sirs:

Re: Indian Act Income Tax Exemption

We are writing in reply to your correspondence of November 8, 1999, in which you requested our comments regarding the taxation of employment income received by status Indian RCMP members in the following situations:

1. An RCMP member is a status Indian as defined for purposes of the Indian Act. The member lives on reserve but reports to work at an RCMP work site located off reserve. However, more than 50% of the members duties of employment in a year are performed on reserve.

2. In the above situation, should the members travel time to and from the reserve and the RCMP work site, be included in the percentage of time spent working on reserve?

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 previously determined that, for purposes of section 87 of the Indian Act, the reference to personal property includes employment income. In Williams (92 DTC 6320), the Supreme Court of Canada reconsidered the approach to use in determining whether income is situated on a reserve. The proper approach in determining the situs of personal property is to evaluate the various connecting factors which tie the property to one location or another.

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. We have enclosed a copy of the 1994 Guidelines for your files.

Guideline 1 will apply to exempt all of the income of an Indian if at least 90% of the employment duties are performed on a reserve regardless of where the employer is resident. 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 will apply to exempt all of the employment income of employees who live on reserve provided that the employer is in fact resident on a reserve. The condition that the "employer is resident on a reserve" means that the reserve is the place where the central management and control over the employer organization is actually located. The central management and control of an organization is usually considered to be exercised by the group that performs the function of a board of directors of the organization.

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 reserve.

Guideline 4 requires a) that the employer is resident on a reserve; b) 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 c) 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.

In situation 1, guideline 3 would apply to exempt the RCMP member from tax as the individual resides on reserve and performs more than 50% of his/her duties of employment on reserve.

In our view, in calculating the time spent performing employment duties on a reserve, travel time to and from the reserve is not included.

Form TD1-IN, Determination of Exemption of an Indian's Employment Income, will help you determine the type of exemption that applies to an Indian's employment income according to the Indian Act Exemption for Employment Income Guidelines. We have enclosed a copy of this form for your files. The completion of the TD1-IN should assist you in determining what withholdings are required. For information of the requirements to deduct, income tax, Canada Pension Plan contributions, Employment Insurance premiums, and instructions concerning the reporting requirements, please refer to the Employer's Guide to Payroll Deductions - Basic Information..

We trust our comments will be of assistance to you.

Yours truly,

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

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