Principal Issues: 1) Whether the income of an owner-employee is situated on a reserve and exempt from income tax under section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act. 2) Whether the self-employment income of contract staff is situated on a reserve and exempt from income tax under section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act.
Position: 1) and 2) It depends.
Reasons: 1) and 2) A connecting factors analysis is required to determine whether the income is situated on a reserve. Where a portion of the income-earning activities takes place on reserve, the exemption may be prorated to reflect the portion of such activities located on a reserve.
