3 March 1994 External T.I. 9403085 - INDIANS - PENSION INCOME

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.

Health and Welfare Canada
Room 1024
Jeanne Mance Building
Tunney's Pasture 5-940308
Ottawa, OntarioC.Chouinard
K1A 0L3

Attention: Mr. Jérome Berthelette

March 3, 1994

Dear Sir:

Re: Pensions and Other Benefits - A Guide for First Nation Health Boards

We are writing in response to your letter of February 8, 1994 addressed to Mr. R. Biscaro regarding the tax treatment of pension income received by status Indians living on a reserve.

We note incidentally that, when the above-mentioned booklet was published in 1989, the answer provided on page 17 did not completely reflect the Department's position regarding the taxation of pension income received by status Indians. In effect, at that time, the Department's position with respect to pension income was such that pension income received by a status Indian living on or off the reserve from a source on the reserve was tax exempt. Pension income received directly from a source off the reserve was subject to taxation, unless exempted by the Indian Remission Order. This Order, which applied for the 1983 to 1992 taxation years, exempted pension income paid out of a registered pension plan where the contributions were in respect of income that was itself exempt from taxation.

The Department has recently revised its position regarding the tax treatment of pension income received by Indians living on reserve as a result of the Supreme Court of Canada decision in the Glenn Williams v. R., 92 DTC 6320 case. Although the decision in the Williams case dealt primarily with the taxation of unemployment insurance benefits ("UIC") received by Indian individuals, it also discussed factors to consider in determining whether income is tax exempt or not. Specifically, the Court ruled that to determine if an Indian's income is situated on a reserve and thus tax exempt, it is necessary to look at all relevant factors connecting the income to a reserve.

After analyzing the case and receiving input from the Indian community, the Department developed guidelines which explain the application of the tax exemption relating to an Indian's employment income. The goal of these guidelines is to clarify which types of employment situations qualify for the Indian tax exemption. We are enclosing a copy of the guidelines which were issued on December 15, 1993 for your information.

Consequently, commencing in 1993, the Department's position with respect to pension income (including CPP and QPP) is that it will be exempt from tax if the employment income that gave rise to the pension income was itself exempt. The above-mentioned guidelines set out the situations in which employment income will qualify for the Indian tax exemption. Employment income which so qualifies will give rise to tax-exempt pension benefits. Accordingly, we suggest replacing the answer on page 17 with the following: "The Department's current position with respect to pension income is that it will be exempt from tax if the employment income that gave rise to the pension income was itself exempt."

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

Encl.

cc. Rick Owen