4 May 1993 Income Tax Severed Letter 931002 - Glen Williams—Connecting Factors

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.

ADM'S OFFICE (3)                               ADM 930286
RETURN TO RULINGS, ROOM 303, MET. BLDG.
AUTHOR
SUBJECT  OR CORPORATE FILE
May 4, 1993

XXXXXXXXXX

Dear XXXXXXXXXX

          Thank you for your letter of March 22, 1993
expressing your concerns with respect to the taxation of
status Indians.  On December 29, 1992, I issued a letter to
various interested parties regarding the application of the
Indian Act tax exemption as a result of the Supreme Court of
Canada's decision in the Glenn Williams case.

          A key purpose of the letter was to inform the
Indian community that unemployment insurance benefits were
exempt from taxation if they were received in respect of
employment income which was exempt from taxation.  Such
income and benefits are considered to be property of an
Indian on a reserve.

          In order to reach that decision the Court had to
conclude that the situs of the debtor (being on a reserve)
is not the sole factor to be considered in exempting income
from taxation since unemployment insurance benefits are not
paid from a reserve.  Rather, the Court indicated that it is
more appropriate to weigh all the factors which link the
income of an Indian to a reserve.  This reasoning satisfies
the purpose of section 87 of the Indian Act which is to
"preserve the entitlements of Indians to their reserve lands
and to ensure that the use of their property on their
reserve land was not eroded by the ability of governments to
tax, or creditors to seize".

            With a view to fairness, tax paid or payable on
such unemployment insurance benefits received in taxation
year 1985 or later will be refunded.

          The Department must now identify the connecting
factors which will determine whether the income of an Indian
is exempt from taxation.  We have every intention of
adopting a fair and liberal interpretation that will respect
the purpose of section 87 of the Indian Act.

          To assist the Indian community, the Department will
issue guidelines that will describe the situations where the
exemption applies.  For instance, it has already been
determined that the exemption will apply to: 

      -   employment income for duties performed entirely on
          a reserve;

      -   employment income for duties performed entirely off
          a reserve where the employer resides on a reserve
          and the Indian lives on the reserve;

      -   employment income for duties, a substantial amount
          of which are performed on a reserve and either the
          employer is located on the reserve, or the Indian
          lives on the reserve; and

      -   unemployment, pension and retiring benefits
          received in respect of exempt employment income.

          The Department remains of the view that it is
appropriate to prorate the exemption in cases where duties
are performed both on and off a reserve.

          We appreciate, however, that there may be other
situations where the income is linked to a reserve in a
manner that warrants a tax exemption.  In developing the
guidelines, the Department will anticipate as many of those
situations as possible.  If your members are aware of other
factors which the Department should consider before
publishing the guidelines, I would invite them to provide
this information to Mr. B. Dath of the Department as soon as
possible.  His address is:

          Mr. B. Dath, Director
          Business and General Division
          Rulings Directorate
          Legislative and Intergovernmental Affairs Branch
          Revenue Canada, Taxation
          Room 300
          88 Metcalfe Street
          Ottawa, Ontario
          K1A 0L8. 

          A remission order will be passed to ensure that no
one will be adversely affected by the Glenn Williams
decision prior to 1994.

          As you can see, the December 29 letter is not about
a new policy concerning the taxation of Indians.  It deals
only with information regarding the administration of the
Income Tax Act following a court decision.  This is
not a new practice.  There have been many court decisions
over the years clarifying the meaning of section 87 of the
Indian Act and the Department has always been guided
by such decisions.

          I would like to reiterate that it would be most
useful to have input in the development of the guidelines. 
I am confident that, with such participation, progress will
be made towards an appropriate application of the Court
decision.

          Yours sincerely,

          Denis Lefebvre
          Assistant Deputy Minister
          Legislative and Intergovernmental
             Affairs Branch

W.P. Guglich (975-2102) 931002