7 July 1990 Income Tax Severed Letter - Taxation of non-resident Indians

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 Non-Resident Indians

This is in reply to your Memorandum dated January 24, 1990 inquiring as to the taxation of interest income from bank deposits payable to a non-resident Indian child from the estate of his deceased father, which estate is administered by Indian and Northern Affairs Canada.

Unfortunately, we do not have sufficient information to permit us to provide a definitive opinion in respect of this matter. In particular, it is not clear to us whether there is a trust in respect of the estate and, if there is a trust, who the trustee is and where the trust is administered. However, we can make the following general observations which hopefully will be of assistance.

If there is not a trust and the non-resident Indian is the "owner" of the bank deposit and the interest paid thereon, the interest is taxable if the branch of the bank in which the deposit was made is not on a reserve and is not taxable if the branch of the bank in which the deposit was made is on a reserve.

As indicated above, the exemption from tax for Indians depends upon whether the source of income is on a reserve. We note that subsection 90(1) of the Indian Act provides as follows:

"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 of benefit of Indians or bands, or . . .

shall be deemed always to be situated on a reserve."

Subsection 2(1) of the Indian Act provides that:

" `Indian moneys' means all moneys collected, received or held by Her Majesty for the use and benefit of Indians or bands."

We have not extensively researched the meaning of "Indian moneys" and the manner in which this term has been interpreted by the Courts. However, it would prima facie appear that the moneys of a deceased Indian that are being administered by the Department of Indian and Northern Affairs are "Indian moneys".

We do not consider a bank deposit to be a purchase of personal property, e.g. a bank deposit is a loan by the depositor to the bank and a loan is not a purchase. However, if instead of investing the moneys by bank deposit the Department of Indian and Northern Affairs purchased securities, for example, treasury bills, it may be that by virtue of subsection 90(1) such treasury bills would be deemed to be situated on a reserve and thus the Indian "owner" of the securities would be exempt from tax in respect of the income therefrom.

If there is a trust, the trust may be able to avoid paying tax by distributing all of its income and claiming the deduction consequently available to it thereby pursuant to subsection 104(6). The beneficiaries to whom the payments are made by the trust will be taxable in respect of such payments. However, beneficiaries who are Indians will be exempt from tax on such payments if the trust is resident or wholly administered on a reserve. If the trust is neither resident or wholly administered on a reserve, Indian beneficiaries would generally not be entitled to exemption from tax in respect of their income from the trust.