22 January 2025 External T.I. 2023-0980641E5 - Noncash honorariums provided Indigenous individual

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: 1. Are the honorariums and non-cash items provided to Indigenous individuals taxable?

2. What are the reporting requirements for the person providing the honorariums and non-cash items?

Position: 1. Question of fact: Yes, if they are for services performed off-reserve; No if they are windfalls, gifts or for services performed on-reserve.

2. If they are payments for services, the amounts in excess of $500 annually should be reported on a T4A or T1204 slip.

Reasons: 1. See response.

2. See response.

XXXXXXXXXX								2023-098064
									Michel Gauthier

January 22, 2025

Dear XXXXXXXXXX:

Re: Tax treatment of non-cash items and honorariums provided to Indigenous individuals

This is in reply to your email dated June 23, 2023, requesting comments on the taxation of non-cash items and honorariums provided to Indigenous individuals by the XXXXXXXXXX for participating in Indigenous ceremonies and other collaborative events or activities with the XXXXXXXXXX. You stated that the scope of these events and activities may be quite extensive, but the honorariums and non-cash items are to be issued as an ex-gratia payment and not for services. We apologize for the delay in responding.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

In your correspondence, you indicated that the non-cash items, such as sweet grass (tobacco), sage, or blankets are typically less than $500 in value, and the honorariums are cash amounts with a limit of $2,000. However, both the non-cash items and the honorariums can be above those limits with XXXXXXXXXX approval.

The tax treatment of a particular amount does not depend upon the label affixed to it, but upon its true nature. Although you stated that the non-cash items and honorariums are to be issued as ex-gratia payments and not for services, we must determine whether the amounts are properly characterized as a windfall or gift for income tax purposes. Generally, amounts received as windfalls or gifts are not considered derived from a source of income and as such, are not taxable.

Paragraph 1.2 of Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime (footnote 1) provides the following commentary on what factors may indicate that a non-cash item or honorarium is a windfall:

“Windfalls

1.2 Subject to the comments in ¶1.3 and ¶1.11 to 1.29, an amount received as a windfall is not subject to tax. Factors indicating that a particular receipt is a windfall include the following:

a. the taxpayer had no enforceable claim to the payment,

b. the taxpayer made no organized effort to receive the payment,

c. the taxpayer neither sought after nor solicited the payment,

d. the taxpayer had no customary or specific expectation to receive the payment,

e. the taxpayer had no reason to expect the payment would recur,

f. the payment was from a source that is not a customary source of income for the taxpayer,

g. the payment was not in consideration for or in recognition of property, services, or anything else provided or to be provided by the taxpayer, and

h. the payment was not earned by the taxpayer as a result of any activity or pursuit of gain carried on by the taxpayer and was not earned in any other manner.”

In addition, as described in paragraph 1.3 of Income Tax Folio S3-F9-C1, the “term gift is not defined in the Act. In common law jurisdictions, the courts have said that a bona fide gift exists when:

• There is a voluntary transfer of property,
• A donor freely disposes of his or her property to a donee, and
• The donee confers no right, privilege, material benefit, or advantage on the donor or on a person designated by the donor.”

If it is determined that the non-cash items and honorariums are windfalls or gifts, the amounts are not taxable to the recipients. In addition, where the honorarium is a reimbursement or an allowance for actual and reasonable out of pocket travel expenses incurred by the recipient, it is our view that the amount would not be taxable. This would also be the case where the recipient received a nominal honorarium, and the recipient did not regularly provide services for compensation as part of an ongoing business.

If the non-cash items and honorariums are not windfalls or gifts, they are generally taxable as either income from an office or employment or as business income unless exempt from income tax under another provision of the Act. Based on the limited information provided, it is our view that if the non-cash items and honorariums are not windfalls or gifts, they would be received as income from a business because there does not appear to be an employer-employee relationship between the XXXXXXXXXX and the recipients.

That said, paragraph 87(1)(b) of the Indian Act and paragraph 81(1)(a) of the Act exempt from income tax the personal property situated on a reserve of an individual who is registered or entitled to be registered under the Indian Act. In your correspondence, you indicated that the non-cash items and honorariums are provided to First Nations, Inuit, and Métis individuals. Inuit individuals are not entitled to be registered under the Indian Act and are not eligible for the Indian Act tax exemption. Therefore, the following comments do not apply to Inuit individuals.

The courts have determined that personal property includes income and that it is the income that is potentially exempt from tax, not the individual receiving the income. Also, the courts have developed guidance for determining whether income is situated on a reserve. Specifically, the courts have established that the determination of whether income is situated on a reserve depends on the nature of the income and requires identifying various factors connecting the income to a reserve and weighing the significance of each factor. This is referred to as the “connecting factors test.”

When applying the connecting factors test to business income, the courts have indicated that a significant factor to consider is where the income-earning activities take place. The information provided states that the non-cash items and honorariums are provided to Indigenous individuals for participating in Indigenous ceremonies and other collaborative events or activities (hereafter referred to as the “Services”) with the XXXXXXXXXX. Where the Services are performed off-reserve, it tends to indicate that the recipient’s income is not situated on a reserve. Therefore, the non-cash items and honorariums that are not windfalls or gifts and that are provided for Services performed off-reserve likely will not be exempt from tax under paragraph 87(1)(b) of the Indian Act and paragraph 81(1)(a) of the Act. Conversely, if the Services are performed on a reserve, the recipient’s income likely will be situated on a reserve and be exempt from tax under paragraph 87(1)(b) of the Indian Act and paragraph 81(1)(a) of the Act.

In summary, whether the non-cash items and honorariums provided to Indigenous individuals are windfalls, gifts, or payments or benefits for services performed is a question of fact that can only be determined by reviewing the facts in each circumstance. If the non-cash items and honorariums are windfalls or gifts, you do not have to issue a T4A, Statement of Pension, Retirement, Annuity, and Other Income or a T1204, Government services contract payments. On the other hand, if they are for services performed, you will have to issue a T4A slip or a T1204 slip, even if the amount is exempt under the Indian Act. For more information, go to canada.ca/taxes-slips.

That being said, the Canada Revenue Agency has an administrative position that only requires a payer to issue a T4A slip to an individual when the total payments made or benefits provided to the individual in the calendar year exceeds $500. For more information, see Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary (footnote 2) . Similarly, a federal body is only required to issue a T1204 slip for the amount that exceeds $500. For more information, go to T1204 slip, Government services contract payments (footnote 3) .

As noted above, this technical interpretation does not confirm the income tax treatment of the non-cash items or honorariums, but it is intended to assist you in making that determination.

We trust that these comments will be of assistance.

Yours truly,

Ms. Nerill Thomas-Wilkinson, CPA, CA

Manager
Non-Profit Organizations and Indigenous Issues
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plans-fo...

2 https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4157/deducting-income-tax-on-pension-other-income-filing-t4a-slip-summary.html

3 https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/completing-filing-information-returns/t1204-slip-government-services-contract-payments.html