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: Whether CPP and OAS payments received by an Indian are exempt from tax?
Position: Depends on the situation for CPP. No for OAS.
Reasons: CPP payments that relate to employment income that was exempt from tax will be exempt from tax. OAS payments will not be exempt from tax since it is available to all Canadians who qualify, it is not related to previous employment, and there are insufficient factors connecting it to a reserve.
December 12, 2013
Re: Indian Canada Pension Plan and Old Age Security
This letter is in response to your September 25, 2013 letter in which you requested our comments regarding whether the Canada Pension Plan (CPP) and Old Age Security (OAS) payments that you receive should be exempt from income tax.
You stated that you are an Indian, as that term is defined in the Indian Act, and that from XXXXXXXXXX to XXXXXXXXXX, XXXXXXXXXX% to XXXXXXXXXX% of your employment income was exempt from tax because your work was performed on a reserve. You also stated that from XXXXXXXXXX to XXXXXXXXXX, XXXXXXXXXX of your employment income was exempt from tax. You believe that XXXXXXXXXX of your receipts for CPP and OAS should be exempt from tax similar to your employment income.
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings."
Paragraph 81(1)(a) of the Income Tax Act together with paragraph 87(1)(b) of the Indian Act exempt from income tax the personal property of an Indian situated on a reserve. Employment income has been determined to be personal property for the purpose of section 87 of the Indian Act and therefore is exempt from income tax if it is situated on a reserve. Guidance as to whether employment income is situated on a reserve can be found in the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") available on the Canada Revenue Agency (CRA) website.
Additionally, "Information for Indians," available on the CRA website at www.cra-arc.gc.ca/brgnls/stts-eng.html, states:
Employment Insurance benefits, Canada Pension Plan payments, Quebec Pension Plan payments, registered pension plan benefits, retiring allowances, and wage-loss replacement plan benefits you receive are treated in the same way as the employment income that gave rise to the particular income. In other words, if your employment income is exempt from income tax under section 87 of the Indian Act, your employment-related income will also be exempt. If part of your employment income is exempt, any employment-related income arising from that exempt income will also be exempt from income tax."
"Other income - old age security (OAS) benefits
If you receive OAS payments, including the Guaranteed Income Supplement (GIS), the amounts you receive are not eligible for the tax exemption under section 87 of the Indian Act. Since OAS and GIS payments are not related to any previous employment and are not considered to have any connection to a reserve, the payments are considered to be off-reserve. The fact that you live on a reserve is not significant enough to connect the income to a reserve. Therefore, normal rules apply to these payments."
CPP payments will usually be exempt from income tax when received as a result of employment income that was exempt from tax. If a portion of the employment income was exempt, then a similar portion of the CPP payments will be exempt.
OAS payments will not be exempt from income tax since OAS is a program that is available to all Canadians who qualify, it is not related to previous employment, and there are insufficient factors connecting it to a reserve.
We trust our comments will be of assistance.
Non-Profit Organization and Aboriginal Issues Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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