Principal Issues: [TaxInterpretations translation] Is an Indian's income from off-reserve employment excluded from the calculation of income under paragraph 81(1)(a) of the Act?
Position: General comments.
Reasons: Question of fact and guideline 2.
2006-016654 XXXXXXXXXX Guy Goulet, CA, M.Fisc. (819) 986-8098 September 20, 2006
Dear Sir,
Subject: Employment income - Registered Indians
This is in response to your fax of January 11, 2006, in which you asked whether in a particular situation the employment income of a status Indian would be exempt from tax under paragraph 81(1)(a) of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter may be an actual situation involving taxpayers. The Canada Revenue Agency ("CRA") does not generally provide written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, it is the responsibility of the relevant Tax Services Office to determine whether completed transactions have received appropriate tax treatment. We can, however, offer the following general comments which may not be fully applicable in a particular situation.
Where Indians receive income, paragraph 81(1)(a) of the Act and section 87 of the Indian Act provide an exemption from taxation for an Indian's personal property situated on a reserve. The courts have held that for the purposes of this exemption, income is personal property. The issue is whether an Indian's income is situated on a reserve.
Taking into account the principles established in Williams v. The Queen 92 DTC 6320, as well as through consultations with interested Indian groups or individuals, the CRA has identified a number of connecting factors that can be used to determine whether employment income is situate on a reserve. Those factors are described in the June 1994 Indian Act Income Exemption Guidelines, which contain various examples of employment situations covered by the Indian Act. You can obtain a copy of the guidelines on our website at http://www.cra-arc.gc.ca/aboriginals/guidelines-e.html.
Under Guideline 2, all income earned by an Indian from employment will generally be exempt from income tax where the employer resides on a reserve and the Indian lives on a reserve.
Whether or not an employer is resident on a reserve is a question that must be resolved in light of all the relevant facts. In general, where the employer of an on-reserve Indian is a partnership, it is our view that the connecting factor regarding the residency of the employer could be satisfied where all partners in the partnership reside on a reserve.
Also, where the employer of an Indian living on a reserve is a corporation, it is our view that the connecting factor in Guideline 2 would be satisfied if it were determined that the employer (the corporation) was resident on a reserve. That determination is a question of fact. Generally, a corporation is resident at the place where it is actually managed and controlled. The central management and control of a corporation is usually considered to be exercised by the members of the board of directors. However, there may be other persons who actually manage the corporation. Generally, the central management and control of a corporation is exercised at the registered office of the corporation, but it is accepted that it may be exercised at another location such as where the directors meet and hold their meetings. The facts of each situation will determine where the management and control of a corporation is actually exercised.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
for the Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch