5-903545
Dear 19(1)
Re: Taxation of Indians
This is in reply to your letter of December 5, 1990 concerning the tax treatment of 19(1)
24(1)
This Indian exemption from income tax depends upon paragraph 81(1)(a) of the Income Tax Act which provides that:
81(1) There shall not be included in computing the income of a taxpayer for a taxation year,
(a) an amount that is declared to be exempt from income tax by any other enactment of the Parliament of Canada,...
Section 87 of the Indian Act provides that the personal property of an Indian situated on a reserve is exempt from taxation. It is worth setting out the section in part:
87. Notwithstanding any other Act of the Parliament of Canada or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely:
(a) the interest of an Indian or a band in reserve or surrendered lands; and
(b) the personal property of an Indian or band situated on a reserve;
and no Indian or band is subject to taxation in respect of the ownership, occupation, possession or use of any property mentioned in paragraph (a) or (b) or is otherwise subject to taxation in respect of any such property;...
Paragraph 5 of Interpretation Bulletin IT-62 states that "While the exemption in the Indian Act refers to 'property' and the tax imposed under the Income Tax Act is a tax calculated on the income of a person rather than a tax in respect of his property, it is considered that the intention of the Indian Act is not to tax Indians on income earned on a reserve." The Supreme Court of Canada decision, in the case of Nowegejick v. the Queen, 83 DTC 5041, is interpreted to say that only the employer must reside on the reserve and that the Indian could be physically paid off the reserve. In our view Nowegejick is not about "situs" as indicated at page 5044 of that case where it is stated: "In R v. The National Indian Brotherhood (1978), 78 DTC 6488 the question was as to situs, an issue which does not arise in the present case". In this respect, the fact, as stated in the case, that Nowegejick was living on the reserve while earning income from a corporation with its head office on the reserve is relevant. However, the Nowegejick decision shifted the basis of the tax exemption enjoyed by Indians in respect of income from the place where the income was earned to the situs of the income. As a result, income earned by an Indian from employment on a reserve but paid to him or her by an employer situated off the reserve (which was previously thought to be exempt from tax) is now taxable. Therefore, a Remission Order, meant to temporarily address the concerns of the Native community regarding the effect of this court decision, was issued for the 1983 to 1985 taxation years. The Order remitted to an Indian the difference between the income taxes payable by an Indian for those years and the income taxes that would be payable by an Indian for those years if that portion of his or her income from employment that is attributable to work performed on a reserve were not included in computing income for those years. This Order has been extended through 1987 and is being further extended through 1990. It has also been modified to incorporate periodic payments of pension income and certain lump sum pension payments, retiring allowances and training allowances. The latter amounts, to be exempt, must be derived from contributions made in respect of tax-exempt employment income.
24(1)
section 87(a) is not relevant if it refers to the interest in a reserve or surrendered land.
In addition to section 87, the Indian Act contains section 90 which deems certain personal property to be situated on a reserve as follows:
(a) purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands, or
(b) given to Indians or to a band under a treaty or agreement between a band and Her Majesty,
shall be deemed always to be situated on a reserve.
24(1)
Departments position is that paragraph 90(1)(a) does not go so far as to deem an Indian's salary to be situated on a reserve, only because it is paid to him out of a government appropriation. In the National Indian Brotherhood case 78 DTC 6488, it was held that, although the taxpayer corporation was financed by monies appropriated by Parliament, salaries paid to Indian employees could not be "personal property that was ... moneys appropriated by Parliament" within the meaning of Paragraph 90(1)(a) of the Indian Act.
24(1)
(19(1)should, in this case, set out all the relevant circumstances in a letter addressed to Mr. Pierre Middlestead, Director-Taxation, Ottawa District Taxation Office, 360 Lisgar Street, Ottawa, Ontario. K1A 0L9.
We trust this will be of assistance to you.
Yours truly,
B.W. DathDirectorBusiness and General Division Rulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. Head Office, Source Deductions Room 7000 Cumberland Place Attention: R. Cousineau