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: Did subsection 90(1) of the Indian Act apply to the taxpayer's employment income, such that this income would be deemed to be situated on a reserve?
Position: No.
Reasons: The court has determined that generally subsection 90(1) does not apply to employment situations.
XXXXXXXXXX
House of Commons
Ottawa ON K1A 0A6
Dear XXXXXXXXXX :
The office of the Honourable John Duncan, Minister of Aboriginal Affairs and Northern Development, forwarded to me a copy of your correspondence, which I received on July 26, 2011, concerning the taxation of income earned by your constituent, XXXXXXXXXX . I am providing you with the following confidential information as you have obtained written authorization from XXXXXXXXXX .
You advise that XXXXXXXXXX is an Indian who was employed as a XXXXXXXXXX with the XXXXXXXXXX . XXXXXXXXXX believes that her income from this employment was exempt from tax according to subsection 90(1) of the Indian Act.
Generally, Indians are taxable in Canada on the same basis and in the same way as non-Indian individuals. However, the income of an Indian may qualify for an exemption from income tax under section 87 of the Act if the income is determined to be situated on a reserve. We have to consider connecting factors when making such a determination, meaning that factors connecting the income to a location either on or off a reserve must be identified, and the significance of each of the factors must be weighed.
To help Indians determine whether the exemption applies to their employment income, the Canada Revenue Agency (CRA), in consultation with interested Indian groups as well as individuals and other government departments, developed the Indian Act Exemption for Employment Income Guidelines. These guidelines apply to common employment situations involving Indian individuals. The guidelines are available on the CRA Web site at www.cra.gc.ca/brgnls/gdlns-eng.html.
Generally, to qualify for an exemption from tax under guidelines 1, 2, or 3, an Indian must work on a reserve or live on a reserve and have an employer located on a reserve. Guideline 4 exempts employment income earned by an Indian who is an employee of an Indian band, tribal council, or an organization operated on behalf of an Indian band or bands, even though the duties of employment are performed off-reserve, if certain conditions are met.
Subsection 90(1) deems certain personal property to be situated on a reserve for the purposes of sections 87 and 89. These properties are those that were "purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands" or "given to Indians or to a band under a treaty or agreement between a band and Her Majesty." As a result, such personal property would be exempt from tax under section 87.
The decisions of the Federal Court of Appeal in Her Majesty the Queen v. Everett Kakfwi, and the Tax Court of Canada in Kahn-Tineta Horn v. The Minister of National Revenue discussed the issue of whether employment income can be tax exempt under subsection 90(1). The Tax Court concluded in Kahn-Tineta Horn that employment income is not personal property purchased by Her Majesty within the meaning of subsection 90(1). The Federal Court of Appeal concluded in Everett Kakfwi that the requirement of subsection 90(1) for the personal property in question to have been given to the Indian or band under a "treaty or agreement" for it to be deemed to be situated on a reserve is not met when the income was acquired from funding provided by a federal government program.
As a result of these decisions, the CRA generally does not apply subsection 90(1) in situations involving employment income an Indian earned from a program funded by the federal government.
I trust that the information I have provided is helpful.
Yours sincerely,
Gail Shea, P.C., M.P.
Lisa Zannese/ 613-957-2747
2011-041614
August 25, 2011
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