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: Is wage loss replacement income of an Indian exempt from tax when received by virtue of employment income that was exempt from tax?
Position: Yes.
Reasons: Wage loss replacement income arising from employment income will be taxed in the same manner as the employment income from which it is derived.
XXXXXXXXXX
2011-039492
P. Burnley
(613) 957-2100
March 8, 2011
Dear XXXXXXXXXX :
Re: Wage Loss Replacement Income
This is in response to your letter of January 15, 2011, inquiring about the taxation of your wage loss replacement income. You stated that you are an Indian, as that term is defined in subsection 2(1) of the Indian Act, and that you have lived and worked on a reserve for many years. You explained that you are temporarily living off-reserve and are receiving wage loss replacement income due to a disability, and that this income is received by virtue of your employment.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings". This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on our website at http://www.cra-arc.gc.ca. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Paragraph 81(1)(a) of the Income Tax Act together with paragraph 87(1)(b) of the Indian Act exempt from 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 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 our website.
The Guidelines state that, usually, employment-related income, such as employment insurance benefits, retiring allowances, Canada pension plan payments, registered pension plan benefits and wage loss replacement plan benefits, will be exempt from 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 employment-related income will also be exempt. Therefore, if the wage loss replacement income is received as a result of employment income that was exempt from tax, the wage loss replacement income will also be exempt from tax. This will be true even if you are not currently living on a reserve.
We trust that these comments will be of assistance.
Yours truly,
Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2011
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2011
Email this Content