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: Whether social assistance received from a First Nation by an Indian living on reserve is included in the calculation of the Working Income Tax Benefit?
Reasons: Definition of adjusted net income pursuant to subsection 122.7 of the Act.
Author: Meers, Rob
Section: 81(1)(a); 122.7; Reg. 233(1)
November 25, 2016
Re: The effect of social assistance on the Working Income Tax Benefit (WITB) of an Indian
This is in response to your e-mail dated August 31, 2016, seeking clarification based on positions stated in our document 2015-0615021I7. In particular, you were inquiring whether social assistance received from a First Nation by an Indian, as that term is defined in section 2 of the Indian Act, who lives on reserve would be included in the calculation of the WITB pursuant to paragraph 122.7(1) of the Income Tax Act (the “Act”).
This technical interpretation provides general comments about the provisions of 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 IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations. Although we cannot comment on your specific situation, we are able to provide the following general comments, which may be of assistance.
In document 2015-0615021I7 we state:
“It is our view that social assistance payments received from a First Nation by an Indian who lives on a reserve under a program that is administered by the First Nation are sufficiently connected to a reserve to be exempt from tax and should not be included on line 145 of the T1S-D, Credits and Benefits Return. It is also our view that, generally, social assistance payments received by an Indian under a program that is administered by INAC is not sufficiently connected to a reserve to be exempt from tax and is required to be included in income on line 145. An Indian receiving the social assistance should be able to determine who is administering the social assistance program based on the organization that issues the T5007 slip.
Based on the above, it is our opinion that the instructions advising an Indian who lives on a reserve not to include social assistance on line 145 when the assistance is received from a First Nation is correct.”
Paragraph 81(1)(a) of the Act and section 87 of the Indian Act provide a tax exemption for the personal property of an Indian situated on a reserve. The courts have determined that income, including social assistance payments, is personal property for purposes of section 87. Therefore, if a social assistance payment received by an Indian is found to be situated on a reserve, it will be tax-exempt.
You are seeking confirmation as to whether social assistance income that is tax-exempt under paragraph 81(1)(a) of the Act would be included in adjusted family net income in the calculation of the WITB. For purposes of the WITB, subsection 122.7(1) of the Act defines adjusted net income of an individual to mean the amount that would be the individual’s income for the taxation year if:
a) the Act were read without reference to paragraph 81(1)(a) and subsection 81(4);
b) in computing that income, no amount were included under paragraph 56(1)(q.1) or subsection 56(6), in respect of any gain from a disposition of property to which section 79 applies or in respect of a gain described in subsection 40(3.21); and
c) in computing that income, no amount were deductible under paragraph 60(y) or (z).
As a result, social assistance payments that are tax-exempt because they are situated on a reserve will be included at line 10 in the calculation of adjusted family net income on Schedule 6 – Working Income Tax Benefit (“Schedule 6”). Social assistance payments that are not tax-exempt are included on line 145 of the T1S-D and therefore included at line 9 in the calculation of adjusted family net income on Schedule 6.
We also note that in your e-mail you stated that it is your understanding that Indian Bands are not currently required to issue T5007 – Statement of Benefits slips for social assistance paid to status Indians who are resident on a reserve.
Subsection 233(1) of the Income Tax Regulations (the “Regulations”) requires every person who makes a payment described in paragraph 56(1)(u) of the Act to file an information return in prescribed form in respect of such payment. Social assistance payments are generally reported on a T5007 slip. However, subsection 233(2) of the Regulations lists certain exceptions from these reporting requirements.
As described in subsection 233(2) of the Regulations, the following types of payments do not have to be reported on a T5007 slip:
A payment that:
a) is in respect of medical expenses incurred by or on behalf of the payee;
b) is in respect of child care expenses, as defined in subsection 63(3) of the Act, incurred by or on behalf of the payee or a person related to the payee;
c) is in respect of funeral expenses in respect of a person related to the payee;
d) is in respect of legal expenses incurred by or on behalf of the payee or a person related to the payee;
e) is in respect of job training or counselling of the payee or a person related to the payee;
f) is paid in a particular year as a part of a series of payments, the total of which in the particular year does not exceed $500; or
g) is not a part of a series of payments.
Therefore, to the extent that the social assistance payment does not meet the exceptions above, the Band is required to prepare the information return prescribed in subsection 233(1) of the Regulations (T5007) and issue a T5007 slip to the recipient.
We trust that this information will be of assistance to you.
Roger Filion, CPA, CA
Non-Profit Organizations and Aboriginal Issues
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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