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 status Indian employees of a corporation are exempt from income tax.
Position: Question of Fact. Do not appear to currently meet any of the guidelines.
Reasons: Less than 50% of the duties of employment are performed on reserve, the employees do not live on reserve, the employer does not appear to be resident on reserve and finally the employer does not appear to exclusively serve Indians who for the most part live on reserve.
5-981377
XXXXXXXXXX Karen Power, CA
(613) 957-8953
Attention: XXXXXXXXXX
October 21, 1998
Dear Sirs:
Re: Indian Act Income Tax Exemption
We are writing in reply to your letter of March 26, 1998, wherein you requested an advance income tax ruling on behalf of the employees of the XXXXXXXXXX (the "Corporation"). Specifically, you ask whether the income earned by these employees is exempt from taxation under the Indian Act. You have also asked whether our comments would change if the Corporation's head office were located on reserve.
You have provided us with the following facts:
1. The Corporation is a non-profit member corporation existing under the XXXXXXXXXX.
2. The Articles of Continuation of the Corporation, as amended, provide as follows:
(a) One class of membership, which included voting rights.
(b) In the event of the liquidation and dissolution of the Corporation, any remaining property is to be distributed to XXXXXXXXXX
(c) The Corporation is to be carried out without purpose of gain for its members. Any profits or any other accretions to the Corporation are to be used in promoting its objectives.
(d) No part of the income of the Corporation may be payable to or otherwise available for the personal benefit of the Corporation or its members.
3. The objects of the Corporation are to provide services, XXXXXXXXXX.
4. The main purpose of the Corporation is not to make a profit, but to provide services to First Nations people. The Corporation is not competing in the commercial mainstream.
5. Under the Corporation's Bylaws, the members of the Corporation are limited to the Chiefs of the member Bands of the XXXXXXXXXX, as duly constituted from time to time. No other person or organization is entitled to become a member of the Corporation.
6. XXXXXXXXXX.
7. XXXXXXXXXX.
8. The head office of the XXXXXXXXXX.
9. XXXXXXXXXX These services are provided to members living both on and off of the Reserve. These services include the services provided by the Corporation.
10. XXXXXXXXXX.
11. The Corporation's head office is located within the city of XXXXXXXXXX, which is not on a reserve.
12. All of the Corporation's XXXXXXXXXX are located off-reserve within the city of XXXXXXXXXX.
The Corporation has four employees (i.e. Program Manager, Accountant/Receptionist, Tenant Relations Representative and Maintenance Technician). The duties of the these employees are as follows:
PROGRAM MANAGER
XXXXXXXXXX
ACCOUNTANT/RECEPTIONIST
XXXXXXXXXX
TENANT RELATIONS REPRESENTATIVE
XXXXXXXXXX
MAINTENANCE TECHNICIAN
XXXXXXXXXX
14. Three of the Corporation's employees are Indians within the meaning of the Indian Act, the Program Manager, Accountant/Receptionist and Tenant Relations Representative.
15. Most of the duties of the Program Manager are conducted at the Corporation's head office.
16. All of the duties of the Accountant/Receptionist are located at the Corporation's head office.
17. Most of the duties of the Tenant relations Representative are conducted at the Corporation's head office.
18. While many of the duties of the Maintenance Technician are conducted at the Corporation's head office, many are also conducted at the Corporation's XXXXXXXXXX.
19. Most of the Corporation's tenants are Treaty/Status Indians who are members of an Indian Band.
20. All of the Corporation's employees reside off reserve.
An advance ruling is a written statement given by the Department to a taxpayer stating how it will interpret specific provisions of existing Canadian income tax law in its application to a definite, proposed transaction or transactions which the taxpayer is contemplating. Full disclosure is required and where the transaction is to be completed at some indefinite future time or where satisfactory evidence is lacking that a proposed transaction is being seriously contemplated the request for an advance ruling may be refused. Additionally, where a matter on which a determination is requested is primarily one of fact and the circumstances are such that all the pertinent facts cannot be established at the time of the request for the advance ruling an advance ruling will not be granted.
An advance ruling cannot be issued because the request involves a completed rather than proposed transaction and due to the numerous questions of fact that need to be resolved. In the event that you should later decide to re-submit a ruling request on this matter or a similar matter, we suggest that, in addition to the above requirements, the relevant documents and other information referred to in paragraphs 16(a) to (n) of Information Circular 70-6R3 be submitted with your request. A copy of IC 70-6R3 is enclosed for your files. Although an advance income tax ruling will not be issued on this matter, we have provided you with the following comments.
Paragraph 81(1)(a) of the Income Tax 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.
You have indicated that the Maintenance Technician is not an Indian, and therefore in our view, under no circumstances will his employment income be exempt from taxation pursuant to the Indian Act.
Head Office Located Off Reserve
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). Based on the information provided, none of the employment duties are performed on reserve, therefore the income would not be exempt by virtue of
Guideline 1.
Guideline 2 will apply to exempt all of the employment income of an Indian if the Indian lives on a reserve and the employer is resident on a reserve. However, guideline 2 does not apply in your situation as none of the employees live on reserve. In addition, you have indicated that the head office of the employer is not located on the reserve. You should note that 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. However, it may be that the real management and control of an organization is exercised by some other person or group. Generally, management and control is exercised at the principal place of business, but it is recognized that this function may be legitimately exercised in a place other than the principal administrative office of the organization. Where an organization, which would otherwise not be considered to be resident on reserve, is asserting that it satisfies the definition because it holds its board of directors meetings on reserve, it should generally be considered to satisfy the definition where management and control is legitimately exercised during those meetings.
A review of all of the facts surrounding a situation including the minutes of board of directors meetings and resolutions or by-laws passed thereat would be required to conclusively resolve whether the Corporation is "resident on reserve" and this would be best resolved by a Tax Services Office.
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. You have indicated that less than 50% of the employment duties are performed on reserve. Accordingly, guideline 3 would not apply to exempt the employees incomes from taxation.
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. As noted above, a review of all of the facts would required to conclusively resolve where the Corporation is resident. Nonetheless, in our view, the Corporation is not dedicated exclusively to Indians who for the most part live on reserve, such that Guideline 4 would not apply to exempt the employees incomes from taxation.
In summary, none of the guidelines in the "Indian Act Exemption for Employment Income" appear to have been met. Accordingly, in our view, the employment income of the above noted employees is taxable and subject to the appropriate withholding taxes.
Head Office Located On Reserve
You have also asked, whether our comments would change if the Corporation were to locate its head office on a reserve. As noted above, the physical location of a business does not in itself determine its residency. The residence of a business is determined by where the central management and control of the organization is actually located.
Guideline 1 may apply, if in fact 90% or more of the employment duties are performed on reserve regardless of where the employer is resident. The proration rule may also apply in situations where the Indian employees routinely perform a portion of their employment duties on reserve.
Guideline 3 could apply to exempt the Indian employees employment income, if in fact the Corporation is resident on reserve and more than 50% of the duties of employment are performed on reserve.
Guideline 2 and 4 would continue to not be met, as the Indian employees do not live on reserve, nor is the Corporation dedicated exclusively to Indians who for the most part live on reserve.
Please note, that the Guidelines are not intended to apply when it can reasonably be considered that one of the main purposes for the existence of an employment relationship is to establish a connecting factor between the income in question and a reserve.
We trust our comments will be of assistance to you.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation BrancH
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