5 October 1999 External T.I. 9922525 - INDIAN ACT EXP. - EMPLOYMENT INCOME

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 status Indian employees of the XXXXXXXXXX, located off-reserve, are exempt from income tax.

Position: No.

Reasons:..None of the employment income guidelines have been met and there are not sufficient connecting factors to situate the income to a reserve..

xxxxxxxxxx 1999-000402

Karen Power, C.A.

October 5, 1999

Dear Sirs:

Re: Indian Act Exemption for Employment Income

We are writing in response to your letter of July 23, 1999, wherein you requested our views on whether your employment income is exempt from tax.

You have indicated that you are a treaty Indian under the Indian Act and are in the process of moving to the XXXXXXXXXX Reserve.

You are currently employed at XXXXXXXXXX and will commute from the Reserve once your move is complete.

xxxxxxxxxx

Furthermore, you have requested our comments on an article published in a local native newspaper called the Saskatchewan SAGE. The article indicated that native Indians who resided on reserve and worked at the Painted Hand Casino located off reserve in downtown Yorkton were not required to pay federal tax.

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act provide a tax exemption for an Indian's personal property situated on a reserve. The courts have previously determined that, for purposes of section 87 of the Indian Act, the reference to personal property includes employment income. In Williams (92 DTC 6320), the Supreme Court of Canada reconsidered the approach to use in determining whether income is situated on a reserve. The proper approach in determining the situs of personal property is to evaluate the various connecting factors which tie the property to one location or another.

Based on the guidance provided in Williams and after receiving representations from interested Indian groups and individuals, the Department 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 (the "Guidelines"), incorporating the various connecting factors that describe the employment situations covered by the Indian Act. We have enclosed a copy of the Guidelines for your information.

In our view, since your employment duties are performed at the XXXXXXXXXX, a property not situated on reserve, Guidelines 1 & 3 will be inapplicable. The proration rules to Guideline 1 does not apply as none of the employment duties are performed on reserve.

Guidelines 2 & 4 would not apply to exempt your employment income as the employer is not resident on a reserve. The term "on a reserve", as used in the Guidelines, is defined on page 10 of the Guidelines to mean "on a reserve as defined for 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)." According to subsection 2(1) of the Indian Act, reserve , for purposes of the Indian Act, means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band, and for purposes of section 87 of the Indian Act, includes designated lands. "Designated lands" is defined in subsection 2(1) of the Indian Act as "a tract of land or any interest therein, the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests".

The presence of a preferential hiring clause, in our view, does not provide sufficient connecting factors to the reserve to reach the conclusion that your employment income should be exempt from taxation.

Consequently, in our opinion, your employment income earned at the XXXXXXXXXX which is an off-reserve facility will not constitute personal property of an Indian situated on a reserve and, accordingly, will not be exempt from income tax.

The article published in the Saskatchewan SAGE indicates that aboriginal persons who were commuting from nearby reserves to work at the Painted Hand casino, which at the time was located off reserve, would not be subject to federal taxes. As we do not have all the relevant facts before us, we are not able to comment on whether the Department would agree with such a tax exemption.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, C.A.

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