Statement from the Canada Revenue Agency

Recent media coverage has focused on the Canada Revenue Agency's (CRA) actions relating to the taxation of employment income of certain current and former employees of Native Leasing Services/OI Employee Leasing Inc. (NLS).

The CRA is committed to the administration of a fair and transparent tax system, which includes applying laws evenly to all. While the CRA has a duty to assess the amount of tax payable, based on the facts of the case, it also puts a high priority on working with taxpayers who find themselves in particularly difficult circumstances in order to find solutions.

In the courts

NLS is an employee-placement/leasing agency for employees working off-reserve for off-reserve organizations. NLS is located on the Six Nations of the Grand River reserve. The taxation of income earned by employees of NLS has been the subject of numerous court decisions, which have consistently supported the CRA’s assessments.

Indigenous Canadians pay taxes and are subject to the same general tax laws as all other Canadians – except where the tax exemption provided under the Indian Act applies. The Indian Act provides a tax exemption for individuals defined in that Act, if the income is situated on a reserve. 

In the 1992 decision in Williams v. The Queen, 92 DTC 6320, the Supreme Court of Canada (SCC) established a “connecting factors” test in order to identify if income earned or received by an Indian (the term used in the Act)  is “situated on a reserve”. Based on the connecting factors test established by the SCC, the CRA determined that the income earned by the NLS employees was not situated on a reserve and therefore not exempt from tax.

The CRA’s assessments of taxes owed by NLS employees has been affirmed in court rulings dating back more than 15 years. The following information is on the publicly available court record:

• In the late ‘90s and early 2000, the Federal Court of Appeal (FCA), in three separate rulings, applied the connecting factors test and found that the income of NLS employees was taxable. Further, in 2009, the Supreme Court of Canada denied leave to appeal the judgments of the FCA for all three of these NLS employees.
• Over the years, approximately 1,200 employees of NLS appealed their tax assessments to the Tax Court of Canada. Of these, only four were successful as a result of the particular facts of their case.
• More recently, on November 18, 2015, the FCA dismissed the appeals of three more NLS employees. On January 14, 2016, one of these employees filed an application to appeal that decision with the SCC. A decision is pending in this case.

Working with taxpayers to find a solution

While the CRA has an obligation to apply the law evenly to all, it has also provided, where possible, various payment arrangements and interest relief for employees of the NLS.

As of February 2016, the CRA had received 736 requests for relief from accrued interest on tax debt from NLS employees, primarily based on financial hardship. The CRA has, to date, reviewed 728 of these requests and has allowed, in full or in part, approximately 40% of them.

In 2006, the CRA centralized all collections work being done on these files to ensure consistency and sensitivity in addressing the various issues. Over 1,000 files have been resolved; the CRA has attempted to work with each individual in negotiating payment arrangements based on the individual’s ability to pay. Where cooperation from the individual has not been received, legal actions have been initiated on their accounts.

Remission is an extraordinary measure that may be considered where the collection of tax would be unreasonable or unjust, or where remission would otherwise be in the public interest. It is used when all other means, such as objections or appeals, have been tried.

The CRA continues to work with many of the impacted taxpayers, and continues to be open to working with those who are now ready to work with us.