2022-0940661M4 Tax status of income earned by employees

Principal Issues: Whether employment income of an employee qualifies for an exemption from income tax under section 87 of the Indian Act because the employee is registered under the Act and the employer is located on Indigenous territory.

Position: No.

Reasons: The Indigenous territory that the employer is located on does not meet the definition of a reserve under the Indian Act, the employment income that the employee receives from the employer does not qualify for an exemption from income tax.

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

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Diane Lebouthillier, Minister of National Revenue, has asked me to reply to correspondence she received on June 10, 2022, from the office of the Right Honourable Justin Trudeau, Prime Minister of Canada, about the tax status of income earned by employees working at XXXXXXXXXX.

You ask the Canada Revenue Agency (CRA) to confirm whether your employment income qualifies for an exemption from income tax under section 87 of the Indian Act because you are registered under the Act and your employer is located on Indigenous territory.

Please note that email is not a secure method for communicating confidential taxpayer information. The CRA responds by email only if the reply does not contain confidential information.

The exemption from tax contained in section 87 of the Act applies to the “personal property of an Indian or a band situated on a reserve.” The courts have determined that for the purposes of this section, employment income is considered personal property. Therefore, employment income may be exempt from income tax if it is considered situated on a reserve.

The definition of a “reserve,” as provided in section 2 of the Act, includes “a tract of land, the legal title to which is vested in Her Majesty, that has been set apart by Her Majesty for the use and benefit of a band.” Indigenous territory and reserve land are not the same. Indigenous territory is generally understood very broadly and may include reserve land; however, only reserve land is relevant for purposes of the income tax exemption.

You write that the land on which you perform your employment duties is Indigenous territory. Because the Indigenous territory that your employer is located on does not meet the definition of a reserve under the Act, the employment income that you receive from your employer does not qualify for an exemption from income tax.

I trust the information I have provided is helpful.

Sincerely,

Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch

Prepared by:
Ananthy Mahendran
2022-094066

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