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.
Principal Issues:
1.For purposes of the Indian Act, does "reserve" include all lands vested in Her Majesty?
2.Do any of the Guidelines, in the Indian Act Exemption for Employment Income Guidelines, apply to exempt from taxation the taxpayer's employment income?
Position TAKEN:
1.No.
2.a)Guidelines 2 and 4 cannot apply.
b)Insufficient information provided to comment on whether Guideline 1 or 3 would apply.
Reasons FOR POSITION TAKEN:
1.According to subsection 2(1) of the Indian Act, "reserve", for purposes of the Indian Act, means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band, and for purposes of section 87 of the Indian Act, includes designated lands. "Designated lands" is defined in subsection 2(1) of the Indian Act as "a tract of land or any interest therein, the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests".
2.a)Based on the information provided by the taxpayer, his employer is not resident on a reserve and, in addition, is not a person described in Guideline 4.
b)The information provided is not sufficient to determine whether any portion of the taxpayer's employment duties are performed on a reserve and whether he lives on a reserve.
October 6, 1995
Saint John Tax Services Office HEADQUARTERS
Client Assistance M. Azzi
Attention: L. Bolduc 957-8953
7-952509
XXXXXXXXXX - Indian Act Exemption
This is in reply to your memo of September 14, 1995, wherein you requested our views regarding the enclosed letter which you received from XXXXXXXXXX a status Indian. We understand that XXXXXXXXXX feels that he should be exempt from taxation on his employment income with the Department of National Defence by virtue of section 87 of the Indian Act. In his view, federal Crown lands can be considered lands surrendered by natives, and all lands vested in Her Majesty can be considered "surrendered lands" for purposes of the Indian Act. Furthermore, he feels that all lands vested in Her Majesty should be considered a "reserve" for purposes of Indian Act. As his employer is the federal government and is situated on property vested in Her Majesty, he feels that his employer is situated on a reserve, although not an Indian reserve. Since the pay office of his employer is situated on the "reserve", XXXXXXXXXX is of the view that his employment income should be exempt from taxation.
Section 87 of the Indian Act exempts from taxation the personal property of an Indian situated on a reserve. The Courts have determined that, for the purposes of section 87 of the Indian Act, employment income is personal property. Consequently, in the case of employment income earned by an Indian, what must be determined is whether the employment income is situated on a reserve.
According to subsection 2(1) of the Indian Act, "reserve", for purposes of the Indian Act, means a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band, and for purposes of section 87 of the Indian Act, includes designated lands. "Designated lands" is defined in subsection 2(1) of the Indian Act as "a tract of land or any interest therein, the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests". If the release or surrender by the band is absolute, such lands, or any interest therein, would not qualify as "designated lands". Based on these definitions, the fact that land is vested in Her Majesty is not, in and by itself, sufficient to qualify the land as a "reserve" for purposes of the Indian Act. That is, federal property on which a federal government department is situated is not, in and by itself, a "reserve" as this term is used in the Indian Act.
In determining where the employment of status Indian is "situated", prior to the Williams case (92 DTC 6320, (1992) 1 CTC 225), direction was provided by the Nowegijick case (83 DTC 5041, (1983) CTC 20), when it found that the situs of the debtor determined whether income was situated on a reserve and, therefore, exempt from taxation. In Williams, however, the Supreme Court of Canada rejected the situs of the debtor test as the sole test for determining whether personal property of an Indian was situated on a reserve, indicating that "an overly rigid test which identified one or two facts as having controlling force...would be open to manipulation and abuse". The approach adopted in Williams requires the examination of all factors connecting income to a reserve to determine if the income is located on the reserve.
Based on the guidance provided in Williams and after receiving representations from interested Indian groups and individuals, the Department identified a number of connecting factors that can be used to determine whether employment income is situated on a reserve. With a view to assisting the Indian community, the Department developed the Indian Act Exemption for Employment Income Guidelines (the "Guidelines"), incorporating the various connecting factors that describe the employment situations covered by the Indian Act. You may wish to send a copy of the Guidelines to XXXXXXXXXX for his information.
Based on the information provided by XXXXXXXXXX his employer is not resident on a reserve (and, in addition, is not a person described in Guideline 4). Consequently, Guidelines 2 and 4 cannot apply to exempt from taxation XXXXXXXXXX employment income.
We cannot provide comments on whether Guideline 1 or 3 would apply, as the information provided by XXXXXXXXXX is not sufficient to determine whether any portion of his employment duties are performed on a reserve and whether he lives on a reserve. All employment income earned by a status Indian for employment duties performed on a reserve is exempt. Where a portion of the employment income is earned on reserve, Guideline 1 or 3 may apply, depending on the circumstances, to determine whether the off reserve portion is also exempt.
Finally, it should also be noted that the term "on a reserve", as used in the Guidelines, is defined (on page 10 of the Guidelines) to mean "on a reserve as defined for purposes of the Indian Act, including any settlements deemed to be reserves for purposes of the Indian Settlements Remission Order, and any other areas given similar treatment under federal legislation (for example, Category I-A lands under the Cree-Naskapi (of Quebec) Act)."
We trust that these comments will be of assistance.
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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