19 June 2000 Internal T.I. 2000-0028017 - cpp benefits T-E if rec'd by indian spouse

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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 CPP survivor benefits received by a status Indian surviving spouse are tax exempt.

Position: Yes, if recipient is a status Indian and the deceased spouse's employment income was tax exempt.

Reasons: As a result of Williams v. The Queen, 992 DTC 6320, the Agency is of the view that when payments from pension income including CPP benefits relate to income that was tax exempt, the payments will be tax exempt.

		June 19, 2000

	Thunder Bay Tax Services Office	HEADQUARTERS
	Client Services Division	M. Shea-DesRosiers
(613) 957-2058
	Attention: Dave Kannegiesser
		2000-002801

Re: Taxation of Canada Pension Plan ("CPP") Survivor Benefits Received by a Status Indian Surviving Spouse

This is in reply to your facsimile of May 25, 2000, concerning the question of whether CPP survivor benefits received by a status Indian surviving spouse are tax exempt by virtue of section 87 of the Indian Act and section 81 of the Income Tax Act.

You describe the situation as follows:

There are three individuals involved: XXXXXXXXXX (the "Client"), the surviving spouse, XXXXXXXXXX the deceased spouse, and XXXXXXXXXX the Client's current spouse. Both the Client and her current spouse live in the town of XXXXXXXXXX (not on a reserve).

The client is receiving CPP survivor benefits as a consequence of the death of her first spouse, XXXXXXXXXX, a status Indian, was employed on a reserve and his employment income was tax exempt.

The Client, also a status Indian, usually worked on a reserve, and consequently, her income and Employment Insurance were exempt from taxation. XXXXXXXXXX is not a status Indian. His claim for the Married Amount is not reduced by the amount of the Client's tax exempt income.

Your Comments

You are of the opinion that there are no factors that connect the income that the Client is receiving to the reserve and therefore, the income should be taxable in the Client's hands. In your view, any exemption for the benefits that the Client is receiving would have to be based on her connecting factors to the reserve. The Client's income did not generate the benefits. The Client does not reside on a reserve.

Our Comments

Based on Williams v. The Queen (92 DTC 6320), it is our view that income, which is ancillary to employment income, such as CPP benefits, be treated the same as the employment income itself.

With respect to the application of section 87 of the Indian Act tax exemption, when CPP survivor benefits are paid to a surviving spouse in respect of an employee whose employment income was tax exempt, these benefits will also be tax exempt only if the person who receives the CPP survivor benefits is a status Indian.

In the present situation, since the Client is a status Indian and her deceased spouse's employment income was tax exempt, the amounts of CCP survivor benefits that she receives will be tax exempt.

Roberta Alberta, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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