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: Various questions on investment income for Indians
Position: na
Reasons: na
XXXXXXXXXX D. Duff
990472
April 14, 1999
Dear XXXXXXXXXX:
This is in reply to your letter of May 6, 1998 to the Ottawa Taxation Centre concerning the taxation of the income of Indians, which was recently sent to this Directorate for reply. We apologize for the delay in our response. We also note that we wrote to you on June 26, 1998, in reply to your letter of April 18, 1998, wherein you asked various questions relating to this topic.
Our responses to your questions are listed below.
1 Treaty money invested in a house
As stated in our previous letter to you, our understanding of treaty money is that it is the money paid to a Band under section 90 of the Indian Act. The initial receipt of this is generally exempt from income tax. Where these funds are invested in a house which is sold years later for a gain, this gain would normally be a capital gain, however, such gains are generally not taxable if the house is a principal residence. In other situations, 75% of a capital gain is generally included in income. It would be a question of fact whether such capital gains would be exempt pursuant to the Indian Act and the Department would generally consider the same factors as for investment income which were provided to you in our previous letter.
2 T1SDT1 “Special for Indians”
This return is only available in Manitoba, Saskatchewan, Alberta and Quebec on a pilot project basis, and is not available in Ontario. This return can be used by those who are registered Indians under the Indian Act, or can be so registered; on December 31, 1998, they lived in one of the aforementioned provinces; and all of their income was exempt, except for Old Age Security pension, social assistance payments and net federal supplements. It cannot be used by those who had tax deducted from their income or if their employer has elected under the Canada Pension Plan to make contributions on the tax exempt employment income.
3 Investment income on treaty money
This was addressed in the previous letter to you.
4 Investment income on non-treaty money
This was also addressed in the previous letter to you. As stated in that letter, there are a number of factors to consider in determining whether investment income would be exempt. The fact that it is paid to an Indian living on reserve is one factor but not a very significant one.
5 Property bequeathed from an on reserve Indian
Generally, paragraph 69(1)(c) of the Income Tax Act deems property acquired by bequest or inheritance to be received at fair market value. When the beneficiary immediately disposes of the property, there may not be any gain or loss on the transactions. However, in the event there is a gain, it would be a question of fact whether or not it is exempt. The Department would consider factors similar to those discussed in the previous letter regarding investment income.
6 Bank accounts of Indian who died while living on reserve
It is the interest earned on bank deposits that is subject to tax, and not the deposit itself unless it is a special deposit such as a registered retirement savings plan. Interest earned up to the date of death would be considered income of the decedent and the guidelines for investment income would be considered in determining if it is exempt.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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