16 April 2010 External T.I. 2009-0348641E5 - Indian Employment Income - Trucking Industry

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: Is all or part of the employment income of an Indian who transports goods to and from and through reserves exempt from tax?

Position: Depends.

Reasons: The travel time considered must be a duty of employment and must be compensated. Employment duties performed on a reserve may be relevant in determining exempt income if not merely incidental. Travel time between reserves may in some cases be relevant in the transport industry where the trip both begins and ends on reserve.

2009-034864
XXXXXXXXXX Officer: Lori Merrigan
(613) 957-8979
April 16, 2010

Dear XXXXXXXXXX :

Re: Indian Employment Income - Transportation Industry

This is in response to your letter of June 4, 2009, inquiring whether employment income earned by an Indian, as that term is defined as in subsection 2(1) of the Indian Act, driving a long-haul transport truck to and from, and through reserve lands, is exempt income for purposes of paragraph 81(1)(a) of the Income Tax Act (the "Act"). We also note our telephone call of November 30, 2009 (Erskine/XXXXXXXXXX ) and our telephone messages of December 14, 2009, and January 18, 2010, requesting additional information from you regarding your inquiry.

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet 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. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

General

The information provided to us was very limited; consequently, we have assumed for purposes of our response that the individual is an employee and that the employer is not resident on a reserve. We have made no assumption as to whether or not the employee is resident on a reserve.

Paragraph 81(1)(a) of the Act, together with paragraph 87(1)(b) of the Indian Act, exempt from tax certain income of Indians. Paragraph 87(1)(b) of the Indian Act states that "the personal property of an Indian or a band situated on a reserve" is exempt from taxation. The courts have determined that income from employment is personal property for purposes of section 87 of the Indian Act. The Supreme Court of Canada, in Williams v. The Queen, 92 D.T.C. 6320, concluded that the determination of whether income is situated on a reserve, and thus exempt from tax, requires identifying the various factors connecting the income to a reserve and weighing the significance of each such factor.

To simplify the application of this "connecting factors test" with respect to common employment situations, the CRA, together with interested Indian organizations, developed the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"). The Guidelines that may apply in your situation may be summarized as follows:

• Guideline 1 exempts all of the employment income of an Indian employee if at least 90% of the employment duties are performed on a reserve. When less than 90%, but more than an incidental proportion, of the duties are performed on a reserve, and none of the other Guidelines apply, only the portion of income that is earned from duties performed on a reserve is exempt from tax.
• Guideline 3 exempts all of the employment income of an Indian employee if more than 50% of the employment duties are performed on a reserve and either the employer is resident on a reserve or the Indian lives on a reserve.

Discussion

To determine whether any employment income is exempt from tax under the Guidelines referred to above, the portion of employment duties performed on a reserve must be established. For purposes of this determination, we generally take into account two factors:

1. whether a "duty of employment" was performed (i.e., was the employee required to perform the particular task and was the employee compensated by the employer for performing that particular task); and

2. the extent to which the duty of employment was performed on a reserve.

In order for the travel time to and from reserves to be relevant in determining the application of a tax exemption in accordance with paragraph 81(1)(a) of the Act and paragraph 87(1)(b) of the Indian Act, the employee must be compensated for that travel time as part of his or her duties of employment. For example, travel time either directly between two job sites, or between an employee's residence and a job site, within the same reserve, would usually be taken into account for purposes of the exemption if the employee was compensated for that travel time.

Generally, in order for an Indian's employment income to be exempt from tax, the related duties of employment would have to be performed on a reserve. However, as travel or transport between two or more locations is the primary service provided by the transportation industry, we may consider time spent traveling between reserves to be relevant in determining exempt employment income where a trip begins and ends on a reserve. We would not consider a trip to begin or end on a reserve simply because the truck was kept at a home on a reserve and the driver was required to drive to another location off-reserve to begin or complete pick-ups and deliveries.

For purposes of claiming the proration allowed by Guideline 1, we would require that the driver keep detailed log books (as required by provincial transportation authorities), clearly outlining the driver's routes and identifying the reserves that the employee has traveled to and from, or through, in the course of his or her duties of employment.

We trust that these comments will be of assistance.

Yours truly,

Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch