Principal Issues: [TaxInterpretations translation] Can the employment income of a Status Indian employed by the federal government who resides on a reserve and who may be on standby outside of his normal working hours be exempt by virtue of paragraph 81(1)(a)?
Position: No
Reasons: The facts provided by the taxpayer do not lead to the conclusion that he satisfies the requirements of Guideline 3. The mere fact of being available to perform specified work under an employment contract does not, in itself, constitute the performance of employment duties.
Le 2 août 2005
Jonquière Tax Centre Headquarters
Section 541 Income Tax Rulings Directorate
Attention: Ms. Line Audet Michel Lambert
(613) 957-89532005-013570
Income earned on a reserve
XXXXXXXXXX (the taxpayer)
This is further to your faxes of June 10 and July 5, 2005, in which you asked whether the taxpayer's employment income for the years 2000 to 2003 inclusive is exempt from income tax under the Indian Act.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
The Facts
1. The taxpayer is an aboriginal and a status Indian pursuant to the Indian Act. He resides on the XXXXXXXXXX Indian Reserve.
2. The taxpayer works for the Ministry XXXXXXXXXX. He holds the position of XXXXXXXXXX. He performs his duties for 37.5 hours per week at his off-reserve office.
3. According to the Employment Description document, "XXXXXXXXXX".
4. He receives an allowance of XXXXXXXXXX in addition to his regular salary for work performed at his off-reserve office.
5. The taxpayer requests that all of his employment income be exempted from withholding tax as this income was not taxable.
6. In support of his claim, the taxpayer refers to the June 1994 Guidelines for the exemption of income under the Indian Act. Specifically, the taxpayer relies on Guideline 3 which reads as follows:
When:
- More than 50% of the duties of an employment are performed on a reserve; and
- The employer is resident on a reserve, or the Indian lives on a reserve;
All of the income of an Indian from an employment will usually be exempt from income tax.
He also cited a Federal Court of Appeal decision, Her Majesty the Queen v. Angela Murphy (A-402-99) in which it was determined that standby hours were, on the facts of the case, "hours that the person actually worked" pursuant to section 9.1 of the Employment Insurance Regulations.
7. The taxpayer claims that more than 50% of the duties were performed on the reserve. He insists that the time placed on standby, as required by the taxpayer's job description, constitutes the performance of employment-related duties. He argues that nowhere in the June 2004 Guidelines does it state that standby is not an employment-related task.
Our Opinion
8. Where Indians receive income, paragraph 81(1)(a) and section 87 of the Indian Act provide an exemption from taxation for the personal property of an Indian situated on a reserve. The courts have held that for the purposes of that exemption, income is personal property. The issue is whether an Indian's income is situated on a reserve.
9. 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 Canada Revenue Agency has identified a number of connecting factors that can be used to determine whether employment income is situated on reserve. Those factors are described in the June 1994 Guidelines for the exemption of income under the Indian Act, which contain various examples of employment situations covered by the Indian Act.
10. As noted above, the taxpayer relies on Guideline 3 to claim that his salary from the XXXXXXXXXX Ministry is fully exempt from income tax. One of the requirements of this rule is that more than 50% of the employment duties must be performed on the reserve. In this respect, the taxpayer has provided us with a part of his employment contract called "Job Description" prepared by the Ministry.
11. In our view, the portion of the employment contract entitled "Job Description" is not sufficient in itself to conclude that the conditions of Guideline 3 are satisfied. The mere fact of being available under an employment contract does not, in itself, constitute the performance of employment duties on a reserve or elsewhere.
12. In view of the foregoing, we are of the opinion that the taxpayer's claim should not be accepted. We are also of the opinion that it is not necessary for our Directorate to pursue the matter further.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Directorate General for Policy and Planning