The employer is located on a reserve and carries on a construction business. In addition, the employer provides employee lease-out services as to approximately 10% of its total activities. Is the Indian employee’s income from the latter exempt? CRA stated:
In the case of a corporation, some of whose activities are employee lease-out services, that is, that the employee's services are retained by that corporation but the employee's duties are performed, in whole or in part, for another organization …, it is necessary to determine whether the corporation is carrying on a separate business … because … the employment income of an Indian from each of the businesses of such a corporation is … a separate property for the purposes of … section 87 … .
[E]mployee lease-out services should generally be considered a separate business from other activities of the corporation.
The place where the employee lives, the place of residence of the employer and the place where the duties of an employment are performed are usually important connecting factors … .
Where the location from which the business is actually directed and administered is located on a reserve, the employer will generally be considered to reside on that reserve. …
As we noted in Employee Leasing: Tax-Planning Arrangements Based on Section 87, the location of the employer on a reserve is not a connecting factor strong enough, on its own, to exempt the employment income from tax where an Indian is employed through an on-reserve employer but performs the duties of employment off-reserve.