Employment Earnings not Substantively Linked to a Reserve is Taxed

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Employment Earnings not Substantively Linked to a Reserve is Taxed

In Baldwin et al v the Queen, 2014 TCC 284, the Tax Court of Canada had an chance to think about section 87 from the Indian Act so when employment earnings is “situated on the reserve” for tax purposes.


Each one of the five Appellants was utilized by Native Leasing Services (NLS). NLS is managed with a status Indian who resides on the reserve. NLS provides employment placement services not to-for-profit Aboriginal organizations, while offering support services, including payroll services, hr support, worker leasing/outsourcing, bookkeeping and staffing. Only NLS’ administrative staff provided services around the reserve. No Appellants labored on the reserve, and just one of these were built with a residence on the reserve, which she resided in on weekends. Each provided services to numerous Aboriginal organizations through NLS in a variety of metropolitan areas in Ontario and Quebec.


A Legal Court rejected a technique for s. 87 from the Indian Act that centered on the situs from the employment earnings, discovering that this test have been overturned through the Top Court of Canada in Johnson v Canada, [1992] 1 SCR 877, and confirmed in Bastien Estate v Canada, 2011 SCC 38. Each of individuals decisions establish the “connecting factors test” now applies to look for the location of intangible personal property under s. 87.

The “connecting factors test” has two steps: 1) identify potentially relevant factors looking after connect the home to some location, and a pair of) determine the load that needs to be provided to the standards considering three factors: the objective of the exemption from taxation, the kind of property and also the nature from the taxation of this property.

Within this situation, a legal court examined the next factors: the position of the employer, the place that the Appellants were compensated, the Appellants’ residence, and also the location, nature from the services performed and also the special conditions that they were performed. A Legal Court figured that the most crucial step to look into this situation was the place and nature from the work done by the Appellants given the kind of property at issue, namely employment earnings.

A Legal Court figured that no Appellants’ employment indicated any link with a reserve. All services were performed off-reserve and also to Aboriginal peoples residing in the town where the organization was located. Any work completed with people on-reserve was just incidental towards the primary services provided. Consequently, the Appellants’ employment earnings was discovered to be situated off-reserve and therefore, taxed.

The Take Away

This decision confirms the test to become used in figuring out whether employment earnings can be found on the reserve may be the connecting factors test. This test basically compares the strength from the link between the use (and also the employment earnings) to some reserve. Where that connection is weak, the use earnings is going to be situated off a reserve and susceptible to tax. Consequently, chances are when the use is carried out almost solely off-reserve, without any substantive link with a reserve (i.e., the reserve or its residents take advantage of the employment), any resultant earnings is going to be taxed.


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