8 September 1995 Ministerial Letter 9519218 - STATUS INDIANS-GUIDELINE 4

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:

Clarification of the term "employer is resident on a reserve" as used in Guideline 4 of the Indian Act Exemption for Employment Income Guidelines.

Position TAKEN:

Provided general comments on Guideline 4 and on the above-noted term.

Reasons FOR POSITION TAKEN:

Not applicable

									4-951921
XXXXXXXXXX							M. Azzi

Attention: XXXXXXXXXX

September 8, 1995

Dear Sir:

Re: Guideline 4 - Indian Act Exemption for Employment Income Guidelines

Mr. Denis Lefebvre, Assistant Deputy Minister Policy and Legislation Branch, has asked me to reply to your letter of June 30, 1995, concerning his meeting of June 29, 1995, which I also attended, with XXXXXXXXXX. I apologize for the delay in responding.

In general, I agree with your understanding of the meeting, which focused on Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") and, in particular, on the requirement in Guideline 4 that the employer is resident on a reserve.

Prior to the Williams case (92 DTC 6320, (1992) 1 CTC 225), direction was provided by the Nowegijick case (83 DTC 5041, (1983) CTC 20), when it found that the situs of the debtor determined whether income of a status Indian would be exempt from taxation. In Williams, however, the Supreme Court of Canada rejected the situs of the debtor test as the sole test for determining whether personal property of an Indian was situated on a reserve, indicating that "an overly rigid test which identified one or two facts as having controlling force...would be open to manipulation and abuse". The approach adopted in Williams requires the examination of all factors connecting income to a reserve to determine if the income is located on the reserve. The Guidelines follow the guidance provided in Williams.

Briefly, Guideline 4 requires a) that the employer is resident on a reserve; b) that the employer is an Indian band which has a reserve, or a tribal council representing one or more Indian bands which have reserves, or an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves; and c) that the duties of the employment are in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. These elements must all be satisfied in order for Guideline 4 to apply.

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 where 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 thereat would be required to conclusively resolve this question of fact.

Nonetheless, as suggested in your letter, the location of a payroll office on a reserve would not be a determining factor in establishing that an employer is resident on a reserve. Furthermore, the location of a payroll office bears little or no weight as a factor connecting employment income to a reserve.

In your letter, you also indicate that it is your fundamental position that all First Nations are immune from all forms of Canadian taxation by virtue of their aboriginal and treaty rights. Please note that the courts have never recognized that an exemption from taxation was granted under any aboriginal or treaty right. On the contrary, the courts have recognized that the Indian tax exemption is a statutory one. Paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act provide the principal Indian exemption from taxation, which is that personal property of an Indian situated on a reserve is exempt from taxation.

I trust that I have explained the Department's position.

Yours truly,

B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch