Principal Issues: If a person learns he or she is entitled to be registered as an Indian can a tax exemption be claimed for income situated on a reserve in years prior to applying for registration?
Position: Yes
Reasons: Section 87 of the Indian Act provides an exemption for the personal property of an Indian where that property is situated on a reserve. The term Indian is defined to be a person registered as an Indian or entitled to be so registered. It is the date upon which the entitlement arose which determines when an individual is eligible for the tax exemption in section 87.
If the individual can demonstrate that in a particular year he or she was entitled to be registered as an Indian and earned income that was situated on a reserve, the CRA can reassess and issue a refund of tax within three years of the original assessment, or, as part of the Fairness Package, can do so for a period of ten calendar years prior to the request.
2007-022391 XXXXXXXXXX Renée Shields (613) 948-5273 February 19, 2007
Dear XXXXXXXXXX:
Re: Indians entitled to be registered under the Indian Act
This is in response to your electronic correspondence of February 9, 2007 requesting information about the application of section 87 of the Indian Act to individuals who, although eligible for registration as an Indian since birth, only recently applied to Indian and Northern Affairs Canada ("INAC") for registration.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings." Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the Canada Revenue Agency ("CRA") website at http://www.cra-arc.gc.ca. Although we cannot comment on any specific situation, we are prepared to provide the following general comments, which may be of assistance.
Paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act provide a tax exemption for an Indian's personal property situated on a reserve. Subsection 2(1) of the Indian Act defines an Indian as "a person who pursuant to this Act is registered as an Indian or is entitled to be registered as an Indian", while sections 6 and 7 of the Indian Act describe persons who are, and persons who are not, entitled to be registered as Indians. Accordingly, in our view, persons who are entitled to such registration, but who have not been so registered, would be included within the meaning of the term "Indian" and as such may benefit from the tax exemption. This means that it is the date of the entitlement to be registered and not the date of application for registration nor the date of registration itself that is relevant for purposes of the tax exemption.
An individual who realizes that he or she is entitled to be registered as an Indian and therefore was entitled to a tax exemption in one or more prior years may request a reassessment of the T1 Return for the applicable year. As a general rule, subsection 152(4) of the Act authorizes the CRA to reassess within three years from the date of the original assessment. However, pursuant to subsections 152(4.2) and 164(1.5) of the Act, the CRA may reassess an individual's T1 Return and issue refunds beyond this three-year period, for the ten calendar years prior to the date of the taxpayer's request.
An individual should send a request for a T1 Return adjustment to his or her Taxation Centre. The request may be made using Form T1-ADJ, "T1 Adjustment Request," or by providing a signed letter containing the details of the request, social insurance number, address, and a daytime telephone number. In addition, the request must include all relevant documents to support the claim, such as written confirmation from INAC as to when the individual became entitled to be registered as an Indian and, for each year for which an adjustment is requested, documents to demonstrate that the income in question was situated on a reserve and therefore eligible for a tax exemption.
Yours truly,
Mickey Sarazin, CA
Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch