Principal Issues: Taxpayer questioned taxation of Indian's employment income
Position: General discussion of Indian Act Exemption of Employment Income Guidelines
XXXXXXXXXX
Dear XXXXXXXXXX :
The office of the Honourable Chuck Strahl, Minister of Indian Affairs and Northern Development and Federal Interlocutor for Métis and Non-Status Indians, forwarded to me a copy of your correspondence XXXXXXXXXX, which I received on September 11, 2009, concerning the obligation to pay income taxes on your employment income even though you are an Indian as defined in the Indian Act.
Generally, Indians are taxable in Canada on the same basis and in the same manner as non-Indian individuals. However, the income of an Indian may qualify for an exemption from income tax under the Indian Act if the income in question is determined to be situated on a reserve. The Supreme Court of Canada has directed that connecting factors must be considered when making such a determination, meaning that factors connecting the income to a location either on or off a reserve must be identified, and that the significance of each of these factors must be weighed.
To assist Indians in determining whether this Indian Act exemption applies to their employment income, the Canada Revenue Agency (CRA), in consultation with interested Indian groups and individuals and other government departments, developed the Indian Act Exemption for Employment Income Guidelines. These guidelines apply to common employment situations involving Indian individuals. You can find the guidelines on the CRA Web site at www.cra.gc.ca/brgnls/gdlns-eng.html.
Guidelines 1, 2, and 3 discuss employment situations where an Indian lives or works on a reserve. Generally, if the location at which the employment duties are carried out is on a reserve, or if the employer is resident on a reserve and the employee lives on a reserve, then the income may be considered to be situated on a reserve and therefore exempt, or partially exempt, from income tax. Guideline 4 may apply to employment income to exempt it from tax, where employees of Indian bands, tribal councils, or organizations operated on behalf of bands perform their employment duties off-reserve. Several conditions must be met in order for Guideline 4 to apply:
- the employer must be resident on a reserve;
- the duties of employment must be in connection with the employer's non-commercial activity carried on exclusively for the social, cultural, educational, or economic development of Indians who for the most part live on reserves;
- the employer must 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, and dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves.
I appreciate the opportunity to respond to your concerns and trust that the information I have provided is helpful.
Sincerely,
Jean-Pierre Blackburn, P.C., M.P.
Pamela Burnley
613-957-2100
2009-034121