2 October 1996 External T.I. 9632515 - XXXXXXXXXX-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:

Is the employment income of the Indian employees of the XXXXXXXXXX exempt from tax under Guideline 4?

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

The XXXXXXXXXX provides services to all Indians, whether they live on or off reserve. In fact, it appears that the XXXXXXXXXX has programs for Indians in urban centres.

							October 2, 1996

XXXXXXXXXX Tax Centre HEADQUARTERS
T1 Client Services M. Azzi
957-8953
Attention: XXXXXXXXXX
7-963251

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This is in reply to your memo of September 26, 1996, requesting our views on whether the employment income of the Indian employees of the XXXXXXXXXX would be exempt from tax under Guideline 4 of the Indian Act Exemption for Employment Income Guidelines.

We understand that the

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is a non-profit organization providing services to all Indians on and off reserve. The goal of the

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Our Comments

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 intention of the word "exclusively" is to restrict Guideline 4 to those organizations which are dedicated only to the social, cultural, educational or economic development of Indians living on reserve. It would not be sufficient to have these being only part of an organization's objectives. Guideline 4 is a generous interpretation of the direction provided by the Courts in Williams (92 DTC 6320), so it is appropriate to restrict its application to situations that fit squarely within it.

One of the requirements of Guideline 4 is that an organization must be dedicated exclusively to the development of Indians "who for the most part live on reserves." That is, almost all of the Indians in the population served by the organization must live on reserve. Guideline 4 recognizes that there will be situations where an Indian works for an organization which is dedicated exclusively to the development of Indians on reserves, and the work may require the Indian to live away from the reserve. Although the employee's residence would not be a factor which connects the Indian's employment to the reserve, it is appropriate, under the circumstances laid out in Guideline 4, to recognize a connection since the employee is working for the benefit of Indians on reserve.

Based on the limited information provided, it appears that the requirements in at least b) and c) above have not been met, as the XXXXXXXXXX provides services to all Indians, whether they live on or off reserve. In fact, it appears that the XXXXXXXXXX has programs for Indians in urban centres. Accordingly, in our view, the employment income received from the XXXXXXXXXX cannot be exempt from tax under Guideline 4.

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Consequently, in order for Guideline 4 to apply, the XXXXXXXXXX would, inter alia, have to be an Indian organization controlled by one or more Indian bands which have reserves or tribal councils representing one or more Indian bands which have reserves. The concept of control in Guideline 4 is the kind that exists where there is power to command and direct. Where a band or tribal council can replace the directors of an organization, the band or tribal council could be said to control the organization. We were not provided with sufficient information to determine whether this element of Guideline 4 could have been met.

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The employment duties of each particular Indian employee of the XXXXXXXXXX would have to be considered to establish if they were in connection with the employer's (i.e., the XXXXXXXXXX) non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. While the XXXXXXXXXX may have a non-profit mandate, this does not necessarily mean that all of its activities are non-commercial.

Finally, the requirement that the "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. Nonetheless, it should be noted that satisfaction of the requirement that the employer be resident on a reserve is always of some concern where the head office of an organization is located on a reserve, but its main place of business is located off reserve. 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. We were not provided with sufficient information in order to determine whether this requirement of Guideline 4 could have been met with respect to the XXXXXXXXXX Nonetheless, we note that the head office of the XXXXXXXXXX

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R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch