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.
DM'S OFFICE (3) 94-00292M
ADM'S OFFICE (3)
RETURN TO RULINGS, ROOM 303, MET. BLDG.
AUTHOR
SUBJECT OR CORPORATE FILE
April 7, 1994
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable David Anderson, Minister of National Revenue, has asked me to respond to the concerns expressed in your letter of December 10, 1993, to the Right Honourable Jean Chrétien, Prime Minister of Canada, relating to the issue of income taxation of status Indians. I apologize for the delay in responding.
The decision of the Supreme Court of Canada in the Williams (92 DTC 6320) case, required the Department to reconsider its interpretation of the scope of the exemption from income taxation provided under the Indian Act for Indians. When I announced on December 29, 1992, that the Department would be changing the way it applies the Indian Act exemption, I also stated that the Department recognized that some Indians may be negatively affected by its application of the Williams decision. At that time, a one-year period of transition was provided which allowed Indians until December 31, 1993, to make any desired changes in their affairs.
The Williams case decided that unemployment insurance benefits received in respect of employment income that was exempt from taxation were also exempt from taxation. The Court rejected the situs of the debtor test derived from the earlier Nowegijick case as the sole test for determining whether or not a particular property was on a reserve, saying that "an overly rigid test which identified one or two factors as having controlling force... would be open to manipulation and abuse." The Court indicated that it is more appropriate to weigh all the factors which link the income of an Indian with a reserve with a view to meeting the purpose of section 87 of the Indian Act.
Subsequent to the Nowegijick case, and more particularly in recent years, residency of employers on reserve has become more prevalent. It would appear that in some cases this has been for no other reason than to meet the situs of the debtor test.
You will have received a copy of the guidelines that have been developed after receiving extensive input from the Indian community in the form of written submissions and meetings across the country. They are a generous and liberal interpretation of the Williams decision. Employment income for duties performed off a reserve by an Indian living on reserve will normally be exempt where the employer is resident on reserve, except where it can reasonably be considered that one of the main purposes for the existence of the employment relationship is to establish a connecting factor between the income in question and a reserve.
You will notice that in the covering letter received with your copy of the guidelines, we invited comments on the guidelines, and that the Remission Order has been extended for one year to allow a reasonable transition period. The extension, in effect, is a moratorium for an additional year and is applicable to arrangements already in place.
I can assure you that the Department does not intend to alter any aboriginal or treaty rights, nor does it intend to amend the legislation or the policy which is at the base of the tax exemption in Section 87 of the Indian Act. The Department's objective is to properly apply the Income Tax Act and Section 87 of the Indian Act following the decision in the Williams case.
Should you require further information, please do not hesitate to contact me.
Yours sincerely, Denis Lefebvre Assistant Deputy Minister Legislative and Intergovernmental Affairs Branch
A.M. Brake
957-2133
March 30, 1994
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