A limited partnership (FNP) whose limited partner was a First Nation band (a 99.9% interest) and whose general partner was indirectly owned by the band) (0.1% interest) was located on a reserve and held 50.5% of the voting partnership interest in another limited partnership (LP) of which a non-First Nations corporation resident off-reserve (NFNC) held 48.5% of the voting partnership interest. The shareholders of the general partner (GPC), holding 1% of the voting partnership interest, were the FNP (51%) and the NFNC (49%).
The GPC is resident off-reserve and has full power and authority to manage and control LP’s business. The NFNC has an operating agreement with the GPC under which the NFNC makes day-to-day operating decisions of LP. However, any decisions about financing, management changes, management compensation, project proposal, and acceptance etc. must be reviewed and approved by the board of the GPC. More than 50% of LP’s business activities are carried on off-reserve. All LP’s offices are located off-reserve except for its registered office which is located on-reserve. Some of the LP’s employees live on-reserve and some live off-reserve. All LP’s employees consider LP’s registered on-reserve office as their reporting office even though less than 50% of their employment duties are performed on-reserve.
Before finding that the employment income earned off-reserve by the First Nations employees is not situated on a reserve, regardless of where the employees live and where the employer is resident, CRA noted that generally, the courts have indicated that weight should be given to an employer’s residence on a reserve “only where the scope of the employer's activities on the reserve, or the direct benefits flowing to the reserve, indicate a clear nexus between the employer and the reserve” whereas here, LP’s business activities are primarily carried on off-reserve, its day-to-day business decisions of LP are made off-reserve by senior management of a corporation that is not owned by the First Nation and that is resident off-reserve, the First Nations employees perform 50% or more of their employment duties off-reserve and at least 48.5% of LP’s profits flow to an off-reserve corporation that is not owned by the First Nation, and most directors attend its board meetings virtually from off the reserve.
Accordingly, there “does not appear to be any direct and significant benefits flowing to the reserve from LP’s business activities.”