3 November 1997 External T.I. 9717125 - RIVER ADJACENT TO INDIAN RESERVE LANDS

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.

Principal Issues:

Whether the employment income of an Indian employed to do renovation work on XXXXXXXXXX, would be exempt from taxation.

Position:

Not likely.

Reasons:

XXXXXXXXXX however, no part of the river is situated on the reserve. Thus, an Indian employee would be able to obtain full exemption only if the employer were resident on reserve and the Indian lived on reserve.

		971712
XXXXXXXXXX		J.D. Brooks

Attention: XXXXXXXXXX

November 3, 1997

Dear Sirs:

This is in reply to your request of June 9, 1997 sent to the XXXXXXXXXX Tax Services Office concerning the taxability of income which will be earned by Indians from

XXXXXXXXXX

Our Comments

Subsection 87(2) in conjunction with paragraph 87(1)(b) of the Indian Act provides that the personal property of an Indian situated on a reserve is exempt from taxation. It has been held that, for purposes of paragraph 87(b), property includes income. Income will be considered to be on a reserve if it is connected to the reserve, and thus one must consider and weigh all of the factors that serve to connect income to a location that is either on reserve or off reserve.

From your description of the situation, it appears that the contractor will provide work to members of XXXXXXXXXX on an employer/employee basis and therefore we provide some comments dealing with employment income earned by Indians.

Following the 1992 decision of the Supreme Court of Canada in the case of Glenn Williams v. Her Majesty the Queen (92 DTC 6320; (1992) 1 CTC 225), the Department formulated the Indian Act Exemption for Employment Income Guidelines (copy attached) to explain the circumstances in which an Indian's employment income is exempt. Guideline 1 provides for an exemption where an Indian performs 90% of the duties of employment on a reserve. However, since no part of the XXXXXXXXXX River is situated on the XXXXXXXXXX Reserve, Guideline 1 will not assist an Indian in obtaining an exemption with respect to employment duties performed at XXXXXXXXXX. Nevertheless, as described in Guideline 2, an Indian may obtain full exemption with respect to employment if the Indian lives on a reserve and the employer is resident on a reserve. Neither Guideline 3 nor 4 will apply in the circumstances you described. Where none of the Guidelines provides a full exemption, the Proration Rule provides for a portion of employment income being exempt, to the extent the employment duties are required to be performed on a reserve. In the situation you described, it appears that there would be no work to be performed on reserve.

We trust that our comments will be of assistance to you.

Yours truly,

Roberta Albert, C.A.

A/Chief
Business, Property and Employment Section I
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch