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.
Principal Issues: 1. Are payments received by an Indian farming on a reserve under the AgriInvest or AgriStability programs taxable?
2. Are crop insurance payments received by an Indian farming on a reserve taxable?
Position: 1. The payments received from the government under both AgriInvest and AgriStability will be taxed in the same manner as the farming income. In this situation, the payments are likely exempt from tax. Investment income earned on any payments or contributions will be taxed according to the principles set out in Recalma.
2. Crop insurance proceeds are farm income and will be treated in the same manner as the farm income to which they relate.
Reasons: 1. and 2. The payments must be sufficiently connected to a reserve to be exempt from tax. Connecting factor analysis.
XXXXXXXXXX
2011-039643
P. Burnley
(613) 957-2100
June 7, 2011
Dear XXXXXXXXXX :
Re: AgriInvest, AgriStability and Crop Insurance Payments Received by an Indian
This is in response to your letter of February 17, 2011, requesting our comments on the taxation of payments you could receive from a federal or provincial government in relation to your farming operation, under the AgriInvest and AgriStability programs, or as Crop Insurance Payments. You stated that you are an Indian and that your farming operation is on a reserve. For purposes of our comments, we assume that the terms "Indian" and "reserve" have the meanings assigned by subsection 2(1) of the Indian Act.
The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings". This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on our website at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. Although we cannot comment on a specific situation, we are able to provide the following general comments, which may be of assistance.
An Indian's personal property is exempt from tax pursuant to paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act if that property is situated on a reserve. Although income is personal property, its intangible nature makes it difficult to determine its location. The approach established by the Supreme Court of Canada (Williams v. The Queen, 92 DTC 6320) in determining the situs of personal property is to evaluate the various connecting factors that tie the property to one location or another. The determination of whether particular income is connected to a reserve is always a question of fact.
Section 87 of the Indian Act does not apply to corporations, even if they are owned or controlled by an Indian, or operate on a reserve. Therefore, our comments are based on the situation of a self-employed individual, operating a farming business on a reserve.
The leading court case with respect to the taxation of business income earned by an Indian is Southwind v. The Queen, 98 DTC 6084. In Southwind, the Federal Court of Appeal concluded that the most significant factors that serve to connect business income to a location on or off a reserve are the location where the revenue-generating activities are carried out and the location of the business' customers. We generally consider farming income of a self-employed Indian to be exempt from tax if the farming activities take place on a reserve. You have not indicated the type of farming business that you operate and we are not commenting on whether your income from this business is sufficiently connected to a reserve to be exempt from tax. Information and examples of various types of farming activities and related connecting factors can be found on our website at http://www.cra-arc.gc.ca/brgnls/ndns-eng.html.
Amounts paid to a producer under the AgriStability program and Saskatchewan's Crop Insurance program are designed to help with large farm production and income declines and are considered farming income for tax purposes. The amounts paid are directly tied to farming income and farming activities. If the farming activities that qualify a producer for the programs are undertaken on a reserve and the income from the farming activities is exempt from tax pursuant to paragraph 81(1)(a) of the Act and section 87 of the Indian Act, government payments received from the programs in respect of the same farming income will be considered to be sufficiently connected to a reserve to also be exempt from tax. Similarly, where the farming operation of an Indian is carried out on a reserve and the income is considered to be situated on a reserve and exempt from tax, we would generally be of the view that the contributions made by the government under the AgriInvest program would have enough connecting factors to be considered to be situated on a reserve and exempt from tax.
However, income earned on both the producer and government contributions to the AgriInvest account would be taxed in accordance with the principles established by the Federal Court of Appeal in Recalma v. The Queen, 98 DTC 6238. Based on this decision, the CRA looks to the location of the income-generating activities of the issuer of the investment instrument, rather than to the location where the investment instrument was purchased or the location of the activities that generated the amount to be invested. AgriInvest accounts are held at participating financial institutions; in the past, these accounts were held by the federal government. The income earned on AgriInvest contributions will not usually have sufficient connecting factors to be situated on a reserve; therefore, this income is unlikely to be exempt from tax.
We trust that these comments will be of assistance.
Yours truly,
Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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