27 January 2005 External T.I. 2004-0107461E5 - Indian employment income - Guideline 4

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Comments requested regarding Guideline 4 - specifically, the meaning of 1) employer is resident on a reserve and 2) Indians who, for the most part, live on reserve

Position: comments provided

XXXXXXXXXX 2004-010746
Renée Shields
(613) 948-5273
January 27, 2005

Dear XXXXXXXXXX:

Re: Guideline 4

This is in response to your undated letter requesting our comments with respect to wording used in Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines").

You have asked for clarification of the phrase "employer is resident on a reserve." Although always a question of fact, in order to be considered resident on a reserve, central management and control over the employer organization must actually be located on a reserve. The central management and control of an organization is usually considered to be exercised by the group that performs the function of a board of directors of the organization. However, it may be that the real management and control of an organization is exercised by some other person or group.

Generally, management and control is exercised at the principal place of business but it is recognized that this function may be legitimately exercised in a place other than the principal administrative office of the organization. Management and control may be found to exist on a reserve where the directors of the organization validly conduct their board meetings by teleconference call, with a majority of directors being physically present on a reserve. Similarly, where management and control of an Indian organization is exercised over a series of meetings, occurring both on and off reserve, it would be reasonable to require that a majority of such meetings take place on reserve in order to establish residency on reserve.

You have also asked for our comments regarding the phrase "Indians who for the most part live on reserves." The satisfaction of this requirement is a question of fact.

Essentially, what is intended is that the beneficiaries of the employer's activities (and therefore also of the employee's employment activities) be almost exclusively reserve-resident Indians. The test is not so stringent as to preclude the application of Guideline 4 because of the occasional existence of a non-reserve resident beneficiary. However, the more non-reserve residents that benefit; the less the income of the employer's employees can be said to be connected to a reserve and the less likely that Guideline 4 would apply to exempt the income from tax.

A status Indian is considered to be a reserve resident if he or she lives on a reserve in a domestic establishment that is his or her principal place of residence and that is the centre of his or her daily routine. The determination of an individual's principal residence is a question of fact to be ascertained following a review of that individual's circumstances.

We trust that these comments will be of assistance.

Yours truly,

Roxane Brazeau-LeBlond, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch