29 May 2008 External T.I. 2008-0271391E5 - Indian Guidelines; Remote Access Employment

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: Whether performing some duties of employment through remote access to a server located on a reserve could be considered as performing duties of employment on the reserve for purposes of the Guidelines.

Position: Probably not.

Reasons: The Guidelines are intended to apply to standard work situations where the facts are clear. For purposes of the Guidelines, the duties of employment are generally performed where the employee is physically located. Performing duties of employment through remote access to a server on a reserve could be a connecting factor for purposes of the general connecting factors test (depending on the nature of the duties of employment), however all of the circumstances would have to be considered in order to determine the weight to be given such a factor.

									2008-027139
XXXXXXXXXX 								E.  Erskine
(613) 274-3022
May 29, 2008

Dear XXXXXXXXXX :

Re: Application of the Indian Act Exemption for Employment Income Guidelines
(the"Guidelines") to an Employee Using Remote Access

This is in response to your letter of March 11, 2008, asking whether a Status Indian employee who is physically located off a reserve, but who is performing certain duties of employment through remote access to a server located on a reserve, will be considered to be employed on the reserve for purposes of the Guidelines during the time he is working on or with that server.

The situation outlined in your letter appears to be 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 advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency (the "CRA") publications can be found on the CRA 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. 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.

A Status Indian's personal property is exempt from tax pursuant to paragraph 81(1)(a) of the Income Tax 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. In Williams v. the Queen, the Supreme Court of Canada set out the connecting factors test to assist in this determination. The test requires identifying all of the connecting factors that tie the property to a location either on or off a reserve and then weighing the significance of each such factor.

For a Status Indian employee, significant connecting factors situating employment income on a reserve may include the residence of the taxpayer, the location where the duties of employment are being carried out and the residence of the employer. The CRA developed the Guidelines to simplify the application of the connecting factors test in common employment situations. However, because the Guidelines were developed as an administrative tool, they do not constitute a definitive test. The Guidelines, as well as additional information regarding the taxation of employment income, are available on the CRA website.

It is unlikely that we would consider working with a server located on a reserve, through remote access from a location off reserve, to be the same as performing duties of employment on a reserve for purposes of the Guidelines. In our view, the nature of the Guidelines as a simplified version of the connecting factors test means that an employee must be physically present on a reserve in order to be considered to be performing duties of employment on that reserve for purposes of the Guidelines. However, working with a server on a reserve from a location off reserve could be a factor connecting employment income to a reserve for purposes of the general connecting factors test, depending on the nature of the work and the degree to which the work actually affected the server. The weight to be given such a factor would always depend on all the circumstances of the particular situation.

In any event, it is always a question of fact whether any particular Status Indian's income is situated on a reserve and therefore exempt from tax. This determination can only be made by the relevant Tax Services Office having regard to all of the facts and circumstances of the particular situation.

We trust that these comments will be of assistance.

Yours truly,

Robin Maley
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch