9 March 1994 Ministerial Letter 9401758 - INDIANS - INVESTMENT INCOME AND PENSION BENEFITS

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.

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 940079

RETURN TO RULINGS, ROOM 303, MET. BLDG.

AUTHOR
SUBJECT OR CORPORATE FILE

March 9, 1994

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your letter of January 17, 1994, regarding the Indian Act Exemption for Employment Income Detailed Guidelines (herein referred to as the "Guidelines").

You have asked for clarification regarding the application of the Guidelines to various types of income. Our comments with respect thereto are as follows:

Income Earned On A Reserve

The Guidelines only apply with respect to employment income. Accordingly, they do not apply to all income earned on a reserve.

The Department's existing position with respect to business income, as set out in Interpretation Bulletin IT-62, will be maintained pending resolution of two cases before the Courts (Pete, 91 DTC 204 and Charleson, 91 DTC 844). As indicated in the Bulletin, business income earned by an Indian will be tax exempt if the permanent establishment of the business is located on a reserve. In determining the location of the permanent establishment of a business, the following factors are important but not necessarily conclusive:

• the location where the business activities are carried out, viz., where employees report for work, where transactions with customers are arranged, where contracts are signed, and where the inventory is located;
• the location of the head office, if different from the business location; and
• the location of the books and records.

Investment Income and Pension Benefits

Although the Guidelines only apply in respect of employment income earned by status Indians, the Department has determined that employment-related income, such as pension income and unemployment insurance benefits, will receive the same tax treatment as the employment income that gives rise to such income. Thus, pension income (including CPP and QPP) will be exempt from tax if the employment income that gives rise to the pension income is itself exempt pursuant to the Guidelines.

The Department's position with respect to RRSP income is under review as a result of the Williams case. Our current position, which may be subject to change once the review is completed, is that RRSP or RRIF income is taxable unless it is paid to an Indian by a financial institution whose principal place of business (i.e., its head office) is located on a reserve, in which case it will be exempt.

With respect to investment income, the Department's current position varies according to the type of income earned. The Department regards interest income on a bank account as earned at the location where the funds are on deposit, i.e., the specific bank branch address. Consequently, interest earned by a status Indian on an account with a branch of a bank or other financial institution located on a reserve will be exempt from tax.

Interest from guaranteed investment certificates and other interest bearing certificates, such as treasury bills and bonds, is not generally considered to be earned on a reserve. Although the financial instrument may have been purchased through a bank or trust company located on the reserve, the Department considers the interest to be earned and paid from the payer's principal place of business (which is often the issuer's head office). For example, in the case of a government bond, regardless of where purchased, the interest will be considered earned in and paid from Ottawa.

As regards dividend income, dividends on shares from a company whose head office, principal business activity and share register are on a reserve will generally be exempt. If the investment gives rise to a capital gain, it will be exempt from tax if the income that the investment generated was itself exempt from tax.

We have not addressed your question regarding the tax treatment of "all insurances" as it is not clear to us what types of insurances you are referring to. If you provide us with more information in this respect, we will be happy to respond to your query.

Should you require further information, please do not hesitate to contact me.

						Yours sincerely,

						Denis Lefebvre
						Assistant Deputy Minister
						Legislative and Intergovernmental
						   Affairs Branch

C. Chouinard
957-2098
February 21, 1994