30 January 2009 External T.I. 2008-0299381E5 - Honorariums paid to Status Indians by a University

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: Opinions on:

1. Is an honorarium a gift or income when given to a Status Indian for ceremonial services performed?

2. If the honorariums are paid to Status Indians, are they exempt from tax under 81(1)(a)?

Position: 1. Honorariums are income in this situation.

2. Whether the honorarium is taxable or exempt from tax is a question of fact, but likely taxable. Connecting factors test apply.

Reasons: 1. Honorariums have been determined to be income and do not fall within the common definition of gifts. -Supported by CRA publications and court cases.

2. The income must be evaluated in light of the connecting factors tests. The fact that the income is received by a Status Indian for performing a ceremonial service does not in itself tie the income to a reserve. There appears to be insufficient connecting factors to tie the income to a reserve.

XXXXXXXXXX 2008-029938
P. Burnley
(613) 957-3498
January 30, 2009

Dear XXXXXXXXXX :

Re: Honorariums Paid to Elders of First Nations

This is in response to your letter of November 4, 2008, inquiring about honorariums paid to Elders of First Nations and other First Nation individuals for cultural ceremonies provided to the XXXXXXXXXX (the "University").

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, "Advanced Income Tax Rulings". 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. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

According to the limited facts that you have provided to us, the University pays monetary honorariums to First Nations and Elders of First Nations for cultural ceremonies they provide to the University. The University issues a T4A for such honorariums that are over $XXXXXXXXXX . We understand from your letter that, in your view, the honorariums are paid for services and are not gifts. In The Queen v. Gentile, 95 DTC 5176, the Ontario Court of Justice quoted with approval from The Dominion Report Service:

"The essential characteristic of a gift appears in all three definitions. The first notes that it is bestowed "without expectation of return or compensation"; the second that it involves a transfer without "consideration"; and the third says that it is effected "gratuitously". There is no doubt that each definition rightly conveys the accepted definition of a "gift"."

Since the University is paying the honorariums for services provided by the individuals in performing the cultural ceremonies, the honorariums would likely not be considered gifts.

The term "honorarium" is not defined the Income Tax Act (the "Act"). Usually, an honorarium is a payment for a service. In our view, honorariums are generally taxable either as income from an office or employment or as business income, depending on the facts. If the honorariums are paid to employees (i.e., in respect of an office or employment), the usual employee withholding requirements apply and a T4 should be issued. However, we have assumed, for purposes of our comments below, that the honorariums paid to the individuals described in your letter are received by the individuals as independent contractors (i.e., as income from a business).

Paragraph 81(1)(a) of the Act together with paragraph 87(1)(b) of the Indian Act exempt from tax certain income of Status 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. Income, including income from employment or self-employment, has been held by the courts to be personal property for the purposes of section 87 of the Indian Act. It is the income that may be exempt from tax, not the individual receiving the income. Whether or not the income is exempt from tax is a question of fact in each case.

The Supreme Court of Canada, in Williams v. The Queen, 92 DTC 6320, concluded that the determination of whether income is situated on a reserve and thus exempt from tax under the Indian Act requires the evaluation of the various factors which connect the income to a location either on or off a reserve. In Southwind v. The Queen, 98 DTC 6084, 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:

1. the location where the revenue-generating activities are carried out; and

2. the location of the business' customers.

Other factors that were considered relevant, but not necessarily of equal significance, were the location where decisions affecting the business are made, the type and nature of the work, the place where payment is made, the residence of the business owner, the degree to which the business is in the commercial mainstream, the location of a fixed place of business and the location of books and records.

Based on the limited information available to us, since the cultural ceremonies performed by the individuals are not performed on a reserve, and the payer (the University) is not on a reserve, it is likely that the honorariums would not be considered to be sufficiently connected to a reserve to be viewed as situated on a reserve.

Information Circular 82-2R2, "Social Insurance Number Legislation that Relates to the Preparation of Information Slips" and Guide RC4157, "Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary", available on the CRA website, outline the requirements for filing T4As and for obtaining social insurance numbers ("SIN"s). Subsection 237(2) of the Act requires that information slip preparers make reasonable efforts to obtain the SIN of the individual. Efforts made to obtain the SIN should be documented. If the SIN cannot be obtained, any required T4A slip should still be prepared and filed.

We trust that these comments will be of assistance.

Yours truly,

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