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 an Indian's business income from a delivery service business operated as a proprietorship would be tax-exempt income.
Position:
No, only a portion of the income may be exempt.
Reasons:
Based on the facts.Although the delivery service business may be operated out of an office situated on reserve, most of the customers are neither Indian nor Indian organizations and most of the deliveries take place off reserve.
952204
XXXXXXXXXX J.D. Brooks
August 30, 1996
Dear XXXXXXXXXX:
Re: Indian Act Exemption re XXXXXXXXXX
This letter is in reply to your letter of August 9, 1995 in which you requested our opinion concerning the application of the Indian Act to income you earn from your proprietorship. I apologize for the delay in replying to you.
Facts
It is our understanding that you are a status Indian living on the reserve of the
XXXXXXXXXX
Your View
You stated that it is your view that your income from this source would not be subject to income tax.
Our View
Paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act establish the Indian exemption from taxation. Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve. 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 case of Williams must be followed. The proper approach to determining the situs of personal property is to evaluate the various connecting factors which tie the property to one location or another. 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 significant factor that serves to connect business income to a location on reserve or off reserve is the location of the company's customers. Other significant connecting factors would be the location where the activities are carried out as well as, in the case of a delivery service business, the location of the origin and the destination of trips. Accordingly, if all trips were to originate at a location off reserve and terminate at a location off reserve and the customers were off reserve, the business income would generally not be exempt from income taxation. If a portion of the activities were carried out on reserve, a similar portion of the business income may be exempt.
In your situation, the fact that XXXXXXXXXX% of your clients are neither Indian nor Indian-based organizations or businesses, as well as the fact that XXXXXXXXXX% of your deliveries are to off-reserve destinations, provide a strong indication that the income derived from the delivery service business is much more connected to locations off reserve than to locations on reserve. The significance of such factors could entirely outweigh the importance of the fact that the business office is located on reserve and that deliveries may be arranged through that office. The fact that you have an employee who is a member of the XXXXXXXXXX and lives on the reserve does not serve to connect the business income to a location on reserve. The location where the employee and you carry on activities of the business would be more relevant.
Since the provision of delivery services is the main aspect of your business, the most significant connecting factors would be the location of your customers and the location where the delivery services are provided. In your particular situation, it is our understanding that only XXXXXXXXXX% of the deliveries are carried out on reserve. If XXXXXXXXXX% of the business income is earned from on-reserve deliveries, it would be our view that only XXXXXXXXXX% of the business income would be exempt from taxation.
We trust that our comments are 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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