Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Indian Act Exemption - Guidelines
Position: General Comments
Reasons: General Comments
July 10, 2002
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Elinor Caplan, Minister of National Revenue, has asked me to reply to your letter addressed to the Honourable Robert D. Nault, Minister of Indian Affairs and Northern Development, concerning the application of the June 1994 Indian Act Exemption for Employment Income Guidelines. Minister Nault forwarded a copy of your letter to Minister Caplan on May 10, 2002.
Under paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act, an Indian's personal property situated on a reserve is exempted from tax. The courts have previously determined that, for purposes of section 87, the reference to personal property includes employment income. In the 1992 case of Williams v. The Queen, the Supreme Court of Canada reconsidered the approach to use in determining whether income is situated on a reserve. The Court stated that the proper approach in determining the situs of personal property is to evaluate the various connecting factors that tie the property to one location or another.
Based on the guidance provided in the Williams case and after receiving representations from interested First Nation groups and individuals, the Canada Customs and Revenue Agency (CCRA) identified connecting factors that can be used to determine whether employment income is situated on a reserve. To assist the First Nation communities, the CCRA developed the Guidelines, incorporating the various connecting factors that describe the employment situations covered by the Indian Act.
The Guidelines reflect the CCRA's general views on employment situations that qualify for the exemption under the Indian Act. The CCRA's position on the Guidelines is that they are simply a starting point in determining if there are sufficient factors to connect particular employment income to a reserve. In determining whether the exemption under the Indian Act applies, each particular fact situation is reviewed in light of the Guidelines and in conjunction with relevant jurisprudence.
In both the Shilling and Monias decisions, the Federal Court of Appeal concluded that the taxpayer was not entitled to the section 87 exemption. The outcome of both cases turned on the application of the connecting factors test established in the Williams decision. The Court concluded that the factors connecting the income off reserve outweighed the factors connecting the income to a reserve. In March 2002, the taxpayers' applications to appeal the decisions to the Supreme Court of Canada were denied.
The Courts continue to support the connecting factors test established in Williams. In the CCRA's view, the Guidelines continue to represent a reasonable interpretation of the law.
I trust that this explanation will be helpful.
Yours sincerely,
Bill McCloskey Assistant Commissioner Policy and Legislation Branch K. Power 957-8968 2002-014494 June 24, 2002
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