2016-0645991M4 Indians and the GST/HST Tax Credit

Principal Issues: Is income that is exempt under paragraph 81(1)(a) of the Income Tax Act and section 87 of the Indian Act included in calculating the GST/HST credit?

Position: No.

Reasons: The definition of "adjusted income" under subsection 122.5(1) of the Income Tax Act does not include income that is exempt under paragraph 81(1)(a) of that Act and section 87 of the Indian Act.

Author: El-Kadi, Randa
Section: 122.5(1) - definition of "adjusted income"; 81(1)(a); secion 87 of the Indian Act

July 11, 2016

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your correspondence about the entitlement of certain Aboriginal people to the goods and services tax/harmonized sales tax (GST/HST) credit. Thank you also for your understanding regarding the delay of this response.

You are concerned that the individuals earning tax-exempt income receive a larger GST/HST credit than they would be entitled to if their income were taxable. You also ask the rationale for allowing them the credit, given they may not pay the GST/HST at point of sale.

As you mention, an Indian’s income may be eligible for a tax exemption. 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. For the purposes of this exemption, an Indian is defined in subsection 2(1) of the Indian Act.

Generally, an individual’s total GST/HST credit for a year is reduced by five cents for each dollar of the individual’s adjusted income in excess of an indexed threshold. The term “adjusted income” is defined in the Income Tax Act and does not include the income excluded under paragraph 81(1)(a) of the Act. Also, the Act does not require an individual to pay GST/HST to be eligible for the GST/HST credit.

The Canada Revenue Agency is responsible for administering the tax system and applying the Income Tax Act as enacted by Parliament. The Department of Finance Canada is responsible for tax policy. Your concerns relate to tax policy. I am therefore sending a copy of our correspondence to the Honourable Bill Morneau, Minister of Finance, for his consideration.

Thank you for bringing this matter to my attention. I trust the information I have provided and the referral are helpful.

Sincerely,

The Honourable Diane Lebouthillier, P.C., M.P.
Minister of National Revenue
 

c.c.: The Honourable Bill Morneau, P.C., M.P.
        Minister of Finance
        Bill.Morneau@parl.gc.ca

Randa El-Kadi
613-670-9054
2016-064599

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