Area of Law: Indigenous / Aboriginal Law
Answer # 0657
First Nation taxationRegion: Ontario Answer # 0657
The following information has been provided with the assistance of Lakehead University Faculty of Law, Aboriginal Law Studies.
Indian Act exemptions
Aboriginals and non-Aboriginals pay the same taxes for personal and real property off-reserve. However, for Status Indians, section 81(1)(a) of the Income Tax Act, and section 87 of the Indian Act (the ‘Act’) provide tax exemptions from taxes on personal and real property if the property is on a reserve. Personal property includes goods, services and income. This tax exemption has been in existence since before Confederation. The purpose of the exemption is to help preserve reserve lands and property on reserves, and to ensure that the use of property on reserves is not eroded by taxes.
Under the Act, an Indian is defined as “a person who pursuant to this Act is registered as an Indian or is entitled to be registered as an Indian”. The Act specifies the requirements for determining who is considered an Indian under the Act, and it sets out three classifications of Indians, Status Indian, non-Status Indian, and Treaty Indian.
Status Indian: a person who is registered as an Indian under the Act.
Non-Status Indian: a person who is not registered as an Indian under the Act, who lost their status or whose ancestors were never registered, or lost their status under current or former provisions of the Act. View Native and Band Membership for more information.
Treaty Indian: is a Status Indian who belongs to a First Nation that signed a treaty with the Crown, and is, therefore, entitled to treaty benefits.
The Supreme Court of Canada has determined that whether the income of a Status Indian is tax exempt depends on a number of “connecting factors”. In deciding whether an employee’s wages were to be taxed, the Court considered the location:
- where the work was performed,
- of the head office of the employer,
- of the employee’s residence, and
- where the wages were paid.
Generally, if the income is connected to a reserve, then the income is tax exempt. The “connecting factors” test applies to individuals and unincorporated businesses. If the income is earned off-reserve by a Status Indian, it will be considered tax exempt only if the employer is located on a reserve.
Employment-related income, such as Employment Insurance and Canada Pension Plan benefits will also be tax exempt if the income giving rise to these benefits qualifies for exemption.
Scholarships and bursaries
Scholarships and other types of education allowances are tax exempt for Status Indians.
OAS and GIS
Old Age Security (OAS) and Guaranteed Income Supplement (GIS) payments are paid by the Government. These payments are available to all Canadians, are not connected to previous employment income, and are not connected to reserves. Consequently, these payments are not tax exempt regardless of whether the recipient lives on reserve.
Investment income may be tax exempt if the income was earned on an investment made at a financial institution located on a reserve.
GST and HST
The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) do not usually apply if the purchase of goods or services was made on a reserve, or if the goods purchased were delivered to a reserve by the seller.
For more information, visit the Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC) website. For further resources, check our Aboriginal Law links.
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