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:
Are NISA withdrawals from Fund 2 by a status Indian taxable
Position:
Generally, no
Reasons:
The interest income earned on NISA Funds 1 and 2 by a status Indian is generally not personal property situated on a reserve since the interest is earned in the economic mainstream. The government’s contributions can be considered to be personal property situated on a reserve where a status Indian is a full time farmer who earns all his farming income on reserve.
XXXXXXXXXX 2000-004615
Cornelis Rystenbil, CGA
April 17, 2001
Dear XXXXXXXXXX:
Re: Net Income Stabilization Account (NISA) Income and Indian Tax Status.
This is in reply to your letter of September 5, 2000 in which you ask our view on how NISA payments are taxed in the hands of a status Indian. More specifically, in our conversation (Rystenbil/XXXXXXXXXX) on September 19, 2000, you indicated that your view is that the interest would be taxable but that the NISA fund 2 contributions made by the government would be tax exempt when withdrawn as they relate to farming income earned on reserve.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
It is a question of fact whether all or a portion of the income otherwise required to be included in income pursuant to subsection 12(10.2) of the Income Tax Act (the “Act”) will have enough connecting factors to a reserve to be exempt under paragraph 81(1)(a) of the Act by virtue of section 87 of the Indian Act. In a situation where the entire farming operation of a status Indian was carried out on a reserve and the status Indian resided on the reserve, the Canada Customs and Revenue Agency would generally be of the view that the portion of the amount paid out of the taxpayer’s NISA Fund No. 2 account that is a return of the contributions made by the government of Canada to that
person’s NISA Fund No. 2 account would have enough connecting factors to the reserve to be exempt. However, with respect to the portion of the amount paid out of the NISA Fund No. 2 account that is a return of interest earned in the account, we are in agreement with you that generally such portion would not be exempt from tax pursuant to paragraph 81(1)(a) of the Act based on the principles established in the decision of Arnold Recalma (1996 DTC 1520).
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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