The CRA Provides Guidelines on the Taxation of Indian Employment Income and Opines on the Taxation of Certain Indian Investments

In 2014-0518771E5 the Canada Revenue Agency summarized its views regarding when employment income earned by Indians (as such individuals are defined in the Indian Act) is exempt from income tax pursuant to s. 81(1)(a) of the Income Tax Act (Canada). In short, the CRA guidelines opine that Indian employment income will be exempt in four situations: 1) where at least 90% of the employment duties are performed on reserve; 2) where the employer is resident on reserve and the employee lives on reserve; 3) where more than 50% of the employment duties are performed on reserve and either the employer is resident or the employee lives on reserve; and 4) where the employer is resident on reserve and is a band or tribal council, or is controlled by a band or tribal council, and the employment duties are non-commercial and performed exclusively for the benefit of on-reserve Indians.  Further, in certain factual situations, a portion of the employment income may be exempt.

In 2012-0443661E5, the CRA further opined on the taxation of investment income earned by Indians in various, specific factual situations.  The CRA relied on the leading Supreme Court of Canada decisions in Bastien & Dubé in performing its analyses.

Individuals and entities seeking to rely on s. 81 of the Income Tax Act (Canada) should seek advice regarding their particular factual situation.