4 February 2000 Internal T.I. 1999-0013647 - PAY EQUITY-TAX EXEMP-STATUS INDIANS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether a portion of the pay equity payment relating to employment income that was tax exempt will be tax exempt?

Position: Yes

Reasons: Where a status Indian 's employment income arising from the pay equity agreement relates to previous employment income that was tax exempt by virtue of 81(1)(a) of the ITA and 87 of the Indian Act, the portion of the pay equity that relates to that employment income will be similarly exempt from income tax.

		February 4, 2000

	XXXXXXXXXX  TAX SERVICES OFFICE	HEADQUARTERS
M. Shea-DesRosiers
	Attention: XXXXXXXXXX 	(613) 957-8953
	               Coordinator
                             Aboriginal Tax Issues
		1999-001364

Pay Equity Payments and Status Indians

This is further to your memorandum of December 2, 1999, wherein you requested our opinion as to whether a portion of the pay equity settlement could be tax exempt in the following circumstances:

A status Indian employee worked on a reserve during some years preceding the pay equity settlement. During that period, the employee met the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") and the income was treated as exempt. The DIAND office moved off the reserve and the employee presently works under conditions not meeting the Guidelines exemption criteria. The employee has received or is about to receive a pay equity settlement amount.

Your answer to the DIAND office in XXXXXXXXXX could include the following:

"Provided that a status Indian's employment income arising from the pay equity agreement relates to previous employment income that was tax exempt in accordance with paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act, the portion of the pay equity that relates to that employment income will be similarly exempt from income tax. However, where a portion of the pay equity payment relates to previous employment income that was taxable, that portion of the pay equity payment will be taxable."

We are also attaching a memorandum on the issue of pay equity payments which we have sent to Client Services. This memorandum concerns both the employment income and interest element of the pay equity settlements.

Roberta Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

Att.