Principal Issues: Whether employment income earned on specific lands of a certain First Nation would be considered tax exempt for years prior to XXXXXXXXXX ?
Position: Question of fact, however unlikely
Reasons: The lands in question were not set apart by the federal crown until the settlement agreement in XXXXXXXXXX .
Signed on June 27, 2005
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable John McCallum, Minister of National Revenue, has asked me to reply to representations made on your behalf by your Member of Parliament, XXXXXXXXXX, regarding the reserve status of certain lands of the XXXXXXXXXX First Nation.
You have indicated that the federal Crown settled an agreement with the XXXXXXXXXX First Nation in XXXXXXXXXX with respect to certain lands that, until XXXXXXXXXX, were considered to be reserve lands. You have asked whether these lands would be considered reserve lands from XXXXXXXXXX until the date of the settlement agreement for purposes of determining whether employment income earned by a Status Indian while he or she was working on this land would be exempt from tax.
Paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act provide a tax exemption for a Status Indian's personal property situated on reserve. In order to determine whether intangible property such as income is situated on a reserve, we use the connecting factors test, which was established in the Supreme Court of Canada case Williams v. the Queen. This test requires that we first identify the various connecting factors that are relevant to the particular property. These factors are then analyzed to determine what weight they should be given in identifying the location of the property. If the most significant factors connect the property to a location on a reserve, the income will be tax-exempt.
The determination of whether a tract of land is a reserve, within the meaning assigned by the Indian Act, is a question of fact. If the land was not a reserve, then the employment income earned on that land would not be considered property situated on reserve. Consequently, the income would be subject to income tax. In order to determine whether the particular lands qualified as a reserve during the period in question prior to the date of the settlement, I suggest you contact your regional office of Indian and Northern Affairs Canada, which is located in Vancouver, British Columbia, at (604) 775-7114.
I appreciate the opportunity to respond to your concerns.
Yours sincerely,
Ed Gauthier Deputy Assistant Commissioner Tax and Regulatory Affairs Policy and Planning Branch
c.c.: Minister's Office
Political Assistant
Kim Duval
599-6054
2005-013402
June 21, 2005