2019-0794131M4 Taxation of Indigenous individuals

Principal Issues: Why are Indigenous individuals not required to pay taxes as other individuals who are resident in Canada?

Position: Indigenous individuals pay taxes and are taxed in the same way as all other Canadian residents, except when the tax exemption provided in the Indian Act applies.

Reasons: Subsection 2(1) of the Income Tax Act and paragraph 87(1)(b) of the Indian Act.

Author: Mahendran, Ananthy
Section: 2(1) and 81(1)(a) of the Income Tax Act; and 2(1) and 87(1)(b) of the Indian Act

February 20, 2019

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Diane Lebouthillier, Minister of National Revenue, has asked me to reply to correspondence she received on January 24, 2019, from the office of the Right Honourable Justin Trudeau, Prime Minister of Canada, about your concerns regarding why Indigenous individuals are not required to pay taxes in the same way you are.

The Government of Canada taxes individuals, including Indigenous individuals, on their income based on their residency. Subsection 2(1) of the Income Tax Act states that income tax shall be paid, as required by the Act, on the taxable income for each tax year of every person resident in Canada at any time in the year. Accordingly, if an individual is resident in Canada, then the individual’s worldwide income is taxable in Canada. Generally, Indigenous individuals pay taxes and are taxed in the same way as all other Canadian residents, except when the tax exemption provided in the Indian Act applies.

Section 87 of the Indian Act exempts from tax the personal property situated on a reserve of individuals who meet the requirements for registration under that Act. The courts have determined that personal property includes income. Therefore, an individual’s income may be exempt from tax if it meets all of the requirements of the Indian Act. The Supreme Court of Canada has stated that this exemption is linked to the protection of reserve land and property. The Court has also concluded that the purpose of the exemption is to make sure tax does not erode the use of the property of these individuals that is situated on reserves. You can find more information on this subject at canada.ca/taxes-aboriginal-peoples.

I appreciate the opportunity to respond to your concerns and trust the information I have provided is helpful.

Sincerely,

Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency

Prepared by:
Ananthy Mahendran
905-721-5204
2019-079413

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