Subject: Pension Payments to Status Indians
This is in reply to your memorandum of August 14, 1991 with attached letter from 19(1) regarding the taxability of pension income earned on the reserve and paid to a status Indian living on a reserve. You ask that we provide answers to the two following questions from 19(1)
1. What are the tax advantages to Indians living on Reserves if benefit payments from a pension plan are deemed to have originated on a reserve?
2. What kind of an operation would have to be set up on a reserve in order that payments it makes will qualify for the tax advantage in 1.?
Our Comments
Paragraph 81(1)(a) of the Income Tax Act exempts from taxation an amount which is declared to be exempt from income tax by any other enactment of the Parliament of Canada. In the case of a status Indian, this entitlement arises from the Indian Act. Employment income earned by an status Indian from an employer located on a reserve is exempt from tax regardless of where the services are performed. Since 1983, the Indian Remission Order also exempts from tax certain types of income which were earned for duties performed on a reserve by a status Indian whose employer is not situated on a reserve.
With respect to 19(1) specific questions, our answers are as follows:
1. A status Indian living on or off the reserve who receives pension payments from a source on the reserve receives such payment as tax exempt income. The pension payments may be received directly from his employer on the reserve, from a trust resident on the reserve, or from any other entity, the head office of which is on the reserve. Pension payments received directly from a source off the reserve would be subject to taxation, unless exempted by the Indian Remission Order. This Order, presently applicable for the 1983 to 1990 taxation years (inclusive), would exempt pension paid out of a registered pension plan where the contributions were in respect of income that was itself exempt from taxation.
In order for an operation to make tax exempt pension payments to a status Indian in respect of exempt income earned on the reserve, it would have to be resident on the reserve. It could not be a branch operation if its head office is off the reserve. It could be a trust, providing all the trustees were resident on the reserve and it was the trustees that physically made the payments to the status Indians. If 19(1) has a particular operation or entity in mind you may suggest, he write, Mr. B. Dath, Director, Business and General Division who will insure a prompt reply to his enquiry.
We trust our comments will be of some assistance to you.
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch