During his 2006 taxation year, when only a portion of his income was exempt under s. 87 of the Indian Act, the taxpayer made past service contributions for his 1979 to 1981 taxation years, during which his employment earnings were completely exempt. The Directorate stated:
The fact that employment income from 1979 to 1981 was exempt … is not in itself determinative of the taxpayer's entitlement to the paragraph 8(1)(m) deduction in 2006. Consequently … the Contributions may be deducted in computing the taxpayer's taxable employment income in 2006 to the extent permitted by subsection 147.2(4). …
Where an expense relates to both on-reserve and off-reserve income … the taxpayer must prorate the expense in question to determine the taxpayer's net employment income that is exempt … . That proration reflects the percentage of work performed on the reserve.