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:
Whether the death benefit of a status Indian is exempt from tax.
Position:
Yes if the pension benefit was exempt and if the beneficiary is also a status Indian.
Reasons:
Where an Indian has earned exempt employment income, the Guidelines note that employment-related income such as benefits from a registered pension plan will be similarly exempt from tax. In such a situation, death benefits would also be similarly exempt, if the beneficiary is a status Indian. However, if the beneficiary is not a status Indian, the death benefit ceases to be personal property of an Indian situated on a reserve and any amount received by the beneficiary would be taxable.
982935
XXXXXXXXXX R.Brazeau-LeBlond, CA
957-2136
Attention: XXXXXXXXXX
November 30, 1998
Dear Sirs:
Re: Death benefits of a Status Indian
This is in response to your letter of November 9, 1998, concerning the tax treatment of death benefits for status Indian members of registered pension plans.
You would like to obtain our confirmation that if pension benefits are received on a tax exempt basis by reason of the member being a status Indian having earned exempt income on a reserve, any death benefits paid to a beneficiary would also be tax exempt as long as the beneficiary is also a status Indian. Also, you were inquiring as to the reason why naming a non-status beneficiary would make the death benefits taxable. You also wanted to know whether all tax-exempt personal property of a status Indian is treated the same way on death.
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 ruling request. The procedures for requesting an advance ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepare to provide the following comments which are of a general nature and are not binding on the Department.
The Indian Act exempts from taxation the personal property of an Indian situated on a reserve. The courts have previously concluded that the reference to personal property includes income. In determining whether income is situated on a reserve, the approach taken by the Supreme Court in the case of Williams must be followed. The proper approach to determine the situs of personal property is to evaluate the various connecting factors that tie the property to one location or another. The Supreme Court indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner erodes the entitlement of an Indian to personal property situated on a reserve.
Based on the guidance provided in Williams and after receiving representations from interested Indian groups and individuals, the Department identified a number of connecting factors that can be used to determine whether employment income is situated on a reserve. With a view to assisting the Indian community, the Department developed the Indian Act Exemption for Employment Income Guidelines, incorporating the various connecting factors that describe the employment situations covered by the Indian Act. Where an Indian has earned exempt employment income, the Guidelines note that employment-related income such as benefits from a registered pension plan will be similarly exempt from tax. In such a situation, death benefits would also be similarly exempt, if the beneficiary is a status Indian.
However, if the beneficiary is not a status Indian, the death benefit is not personal property of an Indian situated on a reserve and any amount received by the beneficiary would be taxable. In our view, this would have application to all personal property of an Indian situated on a reserve that is bequeathed to a non-status Indian.
We trust that these comments will be of assistance.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
cc Raymond Cousineau
Trust Accounts Division
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