Re: Status Indians-Income Tax Act
This is in reply to your letter of September 20, 1991 and further to our telephone conversation Thornley 19(1) of October 21, 1991 relative to the taxation of status Indians.
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 effectively 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.
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 effectively exempted by the Indian Remission Order. This Order, presently applicable for the l983 to 1990 taxation years (inclusive), would effectively exempt pensions paid out of a registered pension plan where the contributions were in respect of income that was itself exempt from taxation.
Investment income earned by a status Indian from a branch of a bank on a reserve would not be considered exempt income unless the Head Office of that bank was situated on the reserve. The one exception to this rule is that set out in paragraph 6(h)(iii) of Interpretation Bulletin IT-62. (a copy of which is enclosed although it now has limited application in a number of situations). It states that interest on a bank account is earned at the location at which the funds are on deposit, i.e., the specific bank branch address. Consequently, interest earned by a status Indian on an account with a branch of a bank or other financial institution located on a reserve would be exempt. This position does not extend to other types of bank investments or instruments such as GIC's.
Self-employment income earned by a status Indian from sources on the reserve is exempt from income tax. However, unlike employment income earned from sources off the reserve in which taxes may be remitted due to the Indian Remission Order referred to above, self-employment income earned from sources off the reserve is taxable.
We trust that our comments will prove helpful. If you have further, specific questions please feel free to contact the writer at the telephone number given above or write to my attention, Revenue Canada, Taxation, Rulings Directorate. 875 Heron Road, Ottawa, Ontario, KlA OL8.
Yours truly
Yours truly,E. Wheeler for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch