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.
964158
XXXXXXXXXX B. Kerr
Attention: XXXXXXXXXX
March 17, 1997
Dear Sirs:
Re: Investment Income - Indians
This is in response to your letter of December 9, 1996, wherein you requested our views concerning the taxability of the investment income of a status Indian of funds that are invested in a T-bill fund or a savings account. The T-bill fund is purchased from, and the savings account is held in a, financial institution that may or may not be situated on a reserve.
In general terms, it is section 87 of the Indian Act, along with paragraph 81(1)(a) of the Income Tax Act, that establishes the Indian exemption from taxation. Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve, and the courts have previously concluded that the reference to personal property in section 87 includes income.
In determining whether the income earned by an Indian is situated on a reserve, and thus exempt from taxation, the approach taken by the Supreme Court of Canada in the 1992 case of Glenn Williams v. Her Majesty the Queen must be followed. This approach requires the examination of all factors connecting income to a reserve to determine if the income is located on the reserve. The Court also indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of an Indian to personal property situated on a reserve. One general direction provided by the Supreme Court in Williams was that "an overly rigid test which identified one or two factors as having controlling force ... would be open to manipulation and abuse." The Supreme Court rejected the situs of the debtor test as the sole test for determining whether the personal property of an Indian or band was situated on a reserve.
With respect to investment income, the Department has taken the view that the location of a savings account at a bank branch on a reserve would not in itself be sufficient to exempt the interest income earned thereon. Where a bank account is considered to be situated at a location on reserve, this is one factor to weigh in determining whether interest earned on deposits in that account is exempt from taxation. There could be other factors that would connect the income to a location off reserve.
In the recent case of Arnold Recalma v. Her Majesty the Queen (94-1971(IT)G), the Tax Court of Canada considered the taxability of income earned by an Indian from investments purchased from a branch of a bank situated on a reserve. The securities were bankers' acceptances and managed funds.
It was noted by the Court that the income stream for these financial instruments started with companies that were located off reserve, and it was held that the investment income of the taxpayer was not personal property situated on a reserve. Rather, the income was earned in the economic mainstream. The Court also pointed out that the source of the capital used to buy the securities and the location of the bank branch where the securities were purchased are not as significant as other factors. For additional comments on this case, you may refer to page 4 of the enlosed Income Tax Technical News No. 9 dated February 10, 1997.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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