7 September 1995 Ministerial Letter 9518348 - INDIANS - 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.

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 (2) ADM #950965
RETURN TO 15TH FLOOR, ALBION TOWER
PENDING COPY
SECTION CHIEF COPY
September 7, 1995

XXXXXXXXXX

Dear XXXXXXXXXX:

I am replying to your letter of June 30, 1995, regarding the application of Guideline 4 of the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") and the Department's GST administrative policy to the XXXXXXXXXX.

XXXXXXXXXX

XXXXXXXXXX

Guideline 4 requires that a) the employer be resident on a reserve; b) the employer be an Indian band which has a reserve, or a tribal council representing one or more Indian bands which have reserves, or an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves; and c) the duties of employment be in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. These elements must all be satisfied in order for Guideline 4 to apply to exempt the income of an employee.

As you indicate in your letter, since XXXXXXXXXX is not an Indian band or a tribal council, it must, in order to meet the second requirement of Guideline 4, be an Indian organization controlled by one or more Indian bands which have reserves or by tribal councils representing one or more Indian bands which have reserves and it must also be dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves. However, since XXXXXXXXXX include persons who are not Indians within the meaning of the Indian Act, in our view, XXXXXXXXXX would not meet the requirement that its activities be exclusively for the development of Indians who for the most part live on reserves. In addition, in the Department's view, where an Indian organization is a non-share corporation, it is generally considered to be controlled by its board of directors. Accordingly, XXXXXXXXXX would meet the control test if more than 50 per cent of the members of the board of directors represent Indian bands which have reserves and tribal councils. Although the board of directors of XXXXXXXXXX is elected by the members of XXXXXXXXXX, that is, the XXXXXXXXXX since, by definition, the XXXXXXXXXX include non-Indians, it is not clear that XXXXXXXXXX could meet the control test.

As regards the residence requirement in Guideline 4, it is a question of fact as to whether an organization is "resident on a reserve". As stated in the Guidelines, an employer is resident on a reserve if "the reserve is the place where the central management and control over the employer organization is actually located. 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." Where an organization asserts that it satisfies the definition because it holds its board of directors meetings on reserve, it would generally be considered to satisfy the definition where management and control over the organization is legitimately exercised during those meetings. A review of the minutes of board of directors meetings and resolutions or by-laws passed thereat would be required to conclusively resolve this question of fact and this would best be resolved by your local Tax Services Office. Nevertheless, in our view, in a situation where the board of directors holds meetings on a reserve, at which decisions are made which direct an organization's operations, such an organization would generally be considered to be resident on a reserve.

You also inquire in your letter about the application of the GST administrative policy to XXXXXXXXXX. The GST administrative policy pertaining to Indians provides tax relief to band-empowered entities in certain circumstances. A band-empowered entity is defined as a corporation, board, council, association, society, or other organization that is owned or controlled by a band, a tribal council, or a group of bands other than a tribal council. In order to qualify as such an entity, XXXXXXXXXX would have to meet both of the following criteria:

• a majority of the members of the governing body of the entity must be appointed or elected by the band, tribal council, group of bands or individual members of the band, tribal council or group of bands; and
• the entity must be required by legislation, by-laws, or an operating agreement, to submit to the band, tribal council or group of bands, its operating budget and where applicable, its capital budget for review and approval.

In your letter, you state that, since the board of directors is elected by members of the band, XXXXXXXXXX meets the first criterion mentioned above. Individual members of the band are included in this criterion to reflect the fact that the members are often acting on behalf of the band when they perform a function, such as electing or appointing members to a governing body of a band-controlled entity. However, the second criterion intentionally does not include "individual members of the band" who could also be acting on behalf of the band for such purposes. Therefore, if, as you propose, XXXXXXXXXX by-laws were amended such that XXXXXXXXXX was required to submit its budgets to individual members of the band, XXXXXXXXXX still would not satisfy the definition of band-empowered entity.

Based on the information you provided, XXXXXXXXXX would not qualify as a band-empowered entity, since it is not required to submit its operating budget for review and approval by the band.

I trust that these comments will be of assistance.

				Yours sincerely,
		Denis Lefebvre
		Interim Assistant Deputy Minister
		Policy and Legislation Branch

C. Chouinard
957-2098
August 31, 1995