23 February 1995 Ministerial Letter 9433448 - EMPLOYMENT INCOME - STATUS INDIANS

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.

MINISTER/DM'S OFFICE 94-12940M
ADM'S OFFICE
RETURN TO RULINGS, 15th Floor, Albion Tower
AUTHOR
SUBJECT OR CORPORATE FILE

February 23, 1995

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable David Anderson, Minister of National Revenue, has asked me to respond to your letter of October 26, 1994, addressed to the Honourable Paul Martin, Minister of Finance, concerning the taxation of employment income of status Indian employees of the XXXXXXXXXX Mr. Martin sent Mr. Anderson a copy of your letter on December 5, 1994, and I apologize for the delay in responding.

You indicate that the
XXXXXXXXXX

that employees are status Indians who live on a reserve; and that the Board meetings are held and decision making is conducted on a reserve.

The Indian Act exempts from taxation the personal property of an Indian situated on a reserve. The Courts have determined that employment income is personal property. Therefore, what must be determined is whether the employment income is situated on a reserve. The Supreme Court of Canada in the case of Williams v. The Queen, 92 DTC 6320, suggested that the situs of the employer should not be the only factor considered, and has directed that all connecting factors must be considered in making this determination. Revenue Canada, after receiving representations from interested Indian groups and individuals, has identified a number of connecting factors that can be used to determine whether employment income is situated on a reserve.

With a view to assisting the Indian community, the Department developed the "Indian Act Exemption for Employment Income Guidelines", incorporating the various connecting factors, that describe the employment situations covered by the Indian Act. Mr. Martin sent you a copy of the Guidelines which were released on June 29, 1994.

All employment income earned by a status Indian for employment duties performed on a reserve is exempt. Where a portion of the employment income is earned on reserve, Guideline 1 or 3 may apply, depending on the circumstances, to determine whether the off-reserve portion is also exempt. Where all of the employment income is earned off reserve, Guideline 2 or 4 may apply, depending on the circumstances, to determine whether the income is exempt.

The information you have provided is not sufficient for us to determine whether the employment duties are performed on a reserve, so we cannot provide any comments on whether Guidelines 1 or 3 would apply. As stated on page 10 of the Guidelines, the term "on a reserve" means on a reserve as defined for the purposes of the Indian Act, including any settlements deemed to be reserves for purposes of the Indian Settlements Remission Order, and any other areas given similar treatment under federal legislation (for example, Category I-A lands under the Cree-Naskapi of Quebec Act). You have not provided enough information for us to determine whether the employer is a person described in Guideline 4. However, it is our understanding that the XXXXXXXXXX land is not a reserve; therefore, Guideline 4 would not apply since the clients served are not Indians who for the most part live on reserves.

Guideline 2 could apply to exempt the employment income of employees who live on reserve, provided that the employer is in fact resident on a reserve. The determination of the residence of an employer is a question of fact. As stated on page 10 of the Guidelines, the term "employer is resident on a reserve" means that the reserve is the place where the central management and control over the employer organization is actually located. The central management and control of an organization is usually considered to be exercised by the group that performs the

function of a board of directors of the organization. However, it may be that the real management and control of an organization is exercised by some other person or group. Generally, management and control is exercised at the principal place of business, but it is recognized that this function may be legitimately exercised in a place other than the principal administrative office of the organization. Where an organization which would otherwise not be considered to be resident on reserve is asserting that it satisfies the definition because it holds its board of directors meetings on reserve, it should generally be considered to satisfy the definition if management and control over the organization is legitimately exercised during those meetings. A review of all of the facts surrounding a situation, including the minutes of board of directors meetings and resolutions or by-laws passed there, would be required to conclusively resolve this question of fact and this would be best resolved by a regional Tax Services office.

Should you wish to submit additional information or if you would like further clarification on how the Guidelines apply to the employment income of your organization's employees, may I suggest that you contact Mr. W. Stockhecke, Director of the Thunder Bay Tax Services office, for assistance. He can be reached by telephone at 1-800-465-6981, or by mail at the following address:

130 South Syndicate Avenue
Thunder Bay, Ontario
P7E 1C7

I trust that I have explained the Department's position on this matter.

		Yours sincerely,
		Pierre Gravelle, Q.C.

Bill Kerr
4-943344
February 17, 1995