6 September 1990 Income Tax Severed Letter ACC9710 - Indian Teachers Employed on Designated Lands

Source Deductions Division         Business and General
Research and Enquiries Section         Division
                                   W.P. Guglich
                                   (613) 957-2102
R. Cousineau

SUBJECT:
OBJET:  Indian Teachers Employed on
        "Designated or Surrendered Lands"

This is in reply to your memorandum dated August 15, 1990 concerning the tax status of Indian teachers employed on surrendered or designated lands.

We provide the following comments regarding your questions.

1.        "Reserve" is defined in subsection 2(1) of the Indian Act 
          to mean a tract of land, the legal title to which is    
          vested in Her Majesty, that has been set apart by Her  
          Majesty for the use and benefit of a band, and for 
          purposes of section 87 of the Indian Act includes       
          designated land.

2.        Indian teachers teaching at schools situated on
          designated lands could qualify for remission of tax under
          the "Indian Remission Order". However it is a question of
          fact whether the two schools are located on designated
          lands.  "Designated lands" is defined in subsection 2(1)
          of the Indian Act to mean " a tract of land or any
          interest therein the legal title to which remains vested
          in Her Majesty and in which the band for whose use and
          benefit it was set apart as a reserve has, otherwise than
          absolutely, released or surrendered its rights or
          interests, whether before or after the coming into force
          of this definition".  Please note that the release or 
          transfer by the band must be "otherwise than absolutely". 
          If the release or surrender by the band is absolute such
          land or any interest therein would not qualify as
          designated lands.  The copy of the order in council,
          which was submitted, transferred, otherwise than
          absolutely, (Her Majesty retained reversionary its 
          certain lands or interest therein from Her Majesty to 
          24(1). To establish that the schools are in fact situated
          on, designated lands the teachers or their solicitor
          should provide some documentary evidence or proof that
          the band, otherwise than absolutely, released or
          surrendered the lands or interest therein.

3.        As regards your memorandum of March 7,1990 we have 
          previously taken the position that:

            "By virtue of paragraph 81(1) (a) of the Income Tax   
            Act and section 87 of the Indian Act the personal     
            property of an Indian or band situated on a reserve   
            is exempt from taxation.  Since the courts have       
            determined that salary or a right to salary is        
            property the relevant issue is whether the personal   
            property of an Indian (i.e. his salary) is situated   
            on a reserve.  This issue was considered by the       
            Federal Court-Trial Division in The Queen v. The      
            National Indian Brotherhood 
78 DTC 6488.  The court
            held that the right to a salary, being a simple       
            contract debt, has as its situs the residence of the  
            debtor or the place where the debtor is found.  Thus, 
            it was concluded in the National Indian Brotherhood   
            case:

          `As the salaries in question of the individual Indians
          until paid were simple contract debts owed by a 
          corporation not resident on a reserve, it is my view that 
          they were not situated on a reserve with the meaning of
          subsection 87(1).'

            In obiter, the Supreme Court-of Canada, in the case   
            of Nowegijick v. The Queen 
83 DTC 5041 cited this
            judgement with approval.  Accordingly, it is the      
            residence of the employer which determines whether a  
            salary is "situated on the reserve".

          Numerous court cases have established that the residence 
          of a corporate employer (i.e. school board) is the place 
          where the employer exercises control and management in
          the present situation it would probably be off the
          reserve.

However the Indian Remission Order, as currently drafted provides for the remission of income tax payable in respect of employment income earned by status Indians working on a reserve. We agree with your view that an Indian working at a school located on "surrendered land" would not qualify for the remission of tax as he would not be considered to be performing duties on a reserve. "Surrendered lands" is defined in subsection 2(1) of the Indian Act to mean a reserve or part of a reserve or any interest therein, the legal been released or surrendered by the band for whose use and benefit it was set apart.

We trust this will be of assistance to you.

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch