Guideline 2
WHEN:
- THE EMPLOYER IS RESIDENT ON A RESERVE; AND
- THE INDIAN LIVES ON A RESERVE;
ALL OF THE INCOME OF AN INDIAN FROM AN EMPLOYMENT WILL USUALLY BE EXEMPT FROM INCOME TAX.
Examples where exempt
Mrs. H works for a logging company that is resident on a reserve. Mrs. H lives on a reserve, but performs her duties at lumber camps located off the reserve. Her employment income is exempt from income tax because the place where she lives and the residence of her employer are factors connecting her income to a reserve.
Mr. I is a construction worker employed by a construction company that is resident on a reserve, to work on building sites that are not located on a reserve. Mr. I lives on a reserve, except for short periods each year when he lives near the construction sites. When away from the reserve, he retains his residence on the reserve where his family lives. Mr. I is exempt from income tax on his employment income because the place where he lives and the residence of his employer are factors connecting his employment income to a reserve.
Example where NOT exempt
Ms. J lives on a reserve and works as an accountant at the head office of a bank located off reserve in a nearby city. The bank maintains a branch on Ms. J's reserve and arranges for her to be paid at that branch. Ms. J's employment income is taxable because the only substantive factor linking her employment income to a reserve is her residence which, without other substantial connecting factors, does not result in exemption. Payment on the reserve is viewed as a connecting factor of relatively little weight.
Mr. K is a construction worker employed by a corporation situated on a reserve. The corporation is an employment agency that makes employees available to work for clients that are not situated on a reserve, on building sites not located on a reserve. Mr. K lives on a reserve. The employment agency had an office on the reserve, but carried out very few of its business activities on the reserve. The guidelines would not apply in this case, and one must therefore do an analysis of the connecting factors. Mr. K's employment income is taxable because the residence of the employer in this case has little weight as a connecting factor. The only other substantive factor connecting Mr. K's employment income to a reserve is his residence, which is not sufficient to bring the employment income within the exemption.