2015-0579831E5 Tax status of Indian

Principal Issues: Confirm that personal property of an Indian situated on a reserve will be exempt

Position: Can only comment on income – rental income may be exempt – depends on the facts.

Reasons: 87 Indian Act

Author: Messore, Anna
Section: 81(1)(a) and 87 Indian Act

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                                                      2015-057983
                                                      A. Messore

June 1, 2015

Dear XXXXXXXXXX:

Re:  Personal property of an Indian situated on a reserve

This is in response to your enquiry concerning the personal property of an Indian situated on a reserve.  For the purposes of our comments below, we use the terms ‘Indian’ and ‘reserve’ as they are defined in subsection 2(1) of the Indian Act.  Specifically, you enquired about whether a rental property and the contents of a bank account generated from the revenue of the rental property were personal property of an Indian situated on a reserve.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “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 IC70-6R6, Advance Income Tax Rulings and Technical Interpretations. 

Whether a rental property or the contents of a bank account are personal property of an Indian situated on a reserve is not within the purview of this Directorate.  We are only able to comment on whether income is the personal property of an Indian situated on a reserve for purposes of the tax exemption provided in the Indian Act and the Act. 

Paragraph 81(1)(a) of the Act together with paragraph 87(1)(b) of the Indian Act exempt from income tax the personal property of an Indian situated on a reserve.  The courts have determined that for the purpose of section 87 of the Indian Act income, including investment income, is personal property and is therefore exempt from income tax if it is situated on a reserve. The Supreme Court of Canada, in Williams  v. The Queen, 92 D.T.C. 6320, concluded that the determination of whether income is situated on a reserve, and thus exempt from tax, requires identifying the various factors connecting the income to a reserve and weighing the significance of each such factor.  In the case of rental income, the CRA considers the location where the rental property is used to be the determining factor.

The Information for Indians page on the CRA website provides the following about whether or not the rental income of an Indian is exempt:

Rental Income and other income from property

If you earn income on a reserve from your reserve property, your income will be exempt under section 87 of the Indian Act. For example, if you rent out a home located on a reserve, your rental income will be exempt from tax. Generally, your income from rental property will not be taxed if the physical location of the property is on a reserve.
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Generally, we only consider rental income to be exempt when it comes from renting out rights to occupy or use real property located on a reserve.  In any other case, we would have to review all of the connecting factors.

More information on whether investment income, such as interest income earned on funds in a bank account, is property situated on a reserve can be found on our Information for Indians page at http://www.cra-arc.gc.ca/brgnls/stts-eng.html#hdng9.

We trust these comments will be of assistance. 

Yours truly,

Roger Filion, CA
Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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