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.
Principal Issues: If an Indian sells land that is part of an Indian Settlement as that term is defined in the Indians and Bands on certain Settlements Remission Order will the Indian pay income tax?
Position: No.
Reasons: If the land qualifies as Indian Settlement land, then the land is treated for income tax purposes as if it were a reserve. If a sale of reserve land takes place it is exempt from tax under paragraph 87(1)(a) of the Indian Act and 81(1)(a) of the Income Tax Act.
December 19, 2008
Federal and Aboriginal Affairs Division HEADQUARTERS
Income Tax Rulings
Directorate
Attention: Warren Hazlett L. Zannese
(613) 957-2747
2008-030158
Sale of Settlement Lands
This is in response to your correspondence of November 25, 2008, requesting our views on whether the sale of a parcel of land by an Indian (as that term is defined in the Indian Act), would be exempt from tax under the Income Tax Act (the "Act"). The land is located in XXXXXXXXXX . It is our understanding that this land is not a reserve, as that term is defined in the Indian Act, but may be an Indian Settlement as defined in the XXXXXXXXXX (the "Remission Order"). In your view, the Remission Order could apply to the transaction with the result that the Indian would not pay tax under the Act with respect to the disposition.
Section XXXXXXXXXX of the Remission Order grants a taxpayer who is an Indian remission in respect of any taxation year after XXXXXXXXXX on the amount of any tax, interest or penalties payable by the taxpayer for each taxation year after that time, that exceeds the tax, interest or penalties that would have been payable had the particular Indian Settlements been reserves throughout the year. Effectively, this means that Indian Settlements described in the Remission Order are treated as reserves for income tax purposes, although the mechanism for relieving tax is remission not exemption.
An Indian settlement is defined in section XXXXXXXXXX of the Remission Order to mean "XXXXXXXXXX ." The schedule to the Remission Order includes the following description of land located at XXXXXXXXXX :
"XXXXXXXXXX ."
If the land being sold is located in the area described above, then the land is part of an "Indian Settlement" as that term is used in the Remission Order. An Indian's interest in reserve lands or surrendered lands is exempt from tax pursuant to paragraph 87(1)(a) of the Indian Act and paragraph 81(1)(a) of the Act. Settlement Lands are effectively treated as reserve lands pursuant to the Remission Order. Therefore, if the particular land being sold is part of an Indian Settlement, then the Remission Order applies such that there is no tax on the sale of the land. We note that, unlike an exemption from tax, or an exclusion from income, a remission order treats the relevant amounts as being included in income and taxable, but any tax paid is refunded to the taxpayer.
We trust that these comments will be of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Eliza Erskine
A/Manager
Non-Profit Organizations and Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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