10 December 1990 Internal T.I. 9027987 F - Tax Exemption for Indians in the Northwest Territories

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.

SUBJECT:  TAXATION OF INDIANS IN THE NORTHWEST TERRITORIES (NWT)

This is in reply to your memorandum of October 10, 1990, concerning the tax treatment of 19(1)

The facts as we understand them are as follows:

1.     

2.     24(1)

3.     

4.     

5.     

The Indian exemption for income tax depends upon paragraph 81(1)(a) of the Income Tax Act which provides that:

     81(1) There shall not be included in computing the income of a taxpayer for a taxation year,

     (a)  an amount that is declared to be exempt from income tax by any other enactment of the Parliament of Canada,...

Section 87 of the Indian Act provides that the personal property of an Indian situated on a reserve is exempt from taxation. It is worth setting out the section in part:

     87.  Notwithstanding any other Act of the Parliament of Canada or any Act of the legislature of a province, but subject to section 83, the following property is exempt from taxation, namely:

     (a)  the interest of an Indian or a band in reserve or surrendered lands; and

     (b)  the personal property of an Indian or band situated on a reserve;

     and no Indian or band, is subject to taxation in respect of the ownership occupation, possession or use of any property mentioned in paragraph (a) or (c) or is otherwise subject to taxation in respect of any such property;...

Paragraph 5 of Interpretation Bulletin IT-62 states that "While the exemption in the Indian Act refers to "property" and the tax imposed under the Income Tax Act is a tax calculated on the income of a person rather than a tax in respect of his property, it is considered that the intention of the Indian Act is not to tax Indians on income earned on a reserve". The Supreme Court of Canada decision, in the case of Nowegejick v. the Queen, 83 DTC 5041, is interpreted to say that only the employer must reside on the reserve and that the Indian could be physically paid off the reserve. In our view Nowegejick is not about "situs" as indicated at page 5044 of that case where it is stated: "In R v. The National Indian Brotherhood (1978), 78 DTC 6488 the question was as to situs, an issue which does not arise in the present case". In this respect, the fact, as stated in the case, that Nowegejick was living on the reserve while earning income from a corporation with, its head office on the reserve is relevant. However, the Nowegejick decision shifted the basis of the tax exemption enjoyed by Indians in respect of income from the source of the income to the situs of the income. As a result income earned by an Indian from employment on a reserve but paid to him or her by an employer situated off the reserve which was previously exempt from tax, is now taxable. Therefore, a Remission Order, meant to temporarily address the concerns of the Native community regarding the effect of this court decision, was issued for the 1983 to 1985 taxation years. The order remitted to an Indian the difference between the income taxes payable by an Indian for those years and the income taxes that would be payable by an Indian for those years as if that portion of his or her income from employment that is attributable to work performed on a reserve were not included in computing income for those years.

This order has been extended through 1987 and is being further extended through 1990. It has also been modified to incorporate periodic payments of pension income and certain lump sum pension payments, retiring allowances and training allowances. The latter amounts, to be exempt, must be derived from contributions made in respect of tax-exempt employment income.

24(1)

In addition to section 87, the Indian Act contains section 90 which deems certain personal property to be situated on a reserve as follows:

     90.(1) For the purposes of sections 87 and 89, personal property that was

     (a)  purchased by Her Majesty with Indian moneys or moneys appropriated by Parliament for the use and benefit of Indians or bands, or

     (b)  given to Indians or to a band under a treaty or agreement between a band and Her Majesty,

     shall be deemed always to be situated on a reserve.

24(1)  In this regard, the Department's position is that paragraph 90(1)(a) does not go so far as to deem an Indian's salary to be situated on a reserve, only because it is paid to him out of an Indian Affairs appropriation. In the National Indian Brotherhood case 78 DTC 6488, it was held that, although the taxpayer corporation was financed by monies appropriated by Parliament, salaries paid to Indian employees could not be "personal property that was ... moneys appropriated by Parliament" within the meaning of paragraph 90(1)(a) of the Indian Act.

The difficult question in this factual situation however is whether the government payment could constitute "personal property that was ... given to Indians or to a band under a treaty or agreement between a band and Her Majesty" within the meaning of paragraph 90(1)(b) and so be deemed to be situated on a reserve for purposes of section 87. On June 21, 1990, in Mitchell v. Peguis Indian Band, the majority in the Supreme Court of Canada held that "the terms 'treaty' and 'agreement' in s. 90(1)(b) take colour from one another". and "Finally, the use of the term 'given' in s. 90(1)(b) can be taken as a distinct and pointed reference to the process of cession of Indian lands".  21(1)(b)

21(1)(b)

21(1)(b)      24(1)

Based on the information available  24(1)

We trust this will be of assistance.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch