Indian Act Exemption for Employment Income Guidelines

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If you are a First Nations person, you are subject to the same tax rules as other Canadians, unless your income is considered to be tax-exempt under section 87 of the Indian Act. However, this is only for income you earn while working on a reserve.

Employment Income

As a First Nations person, for your income to be considered tax-exempt and not subject to income tax, you must meet the requirements of paragraph 81(1)(a) of the Income Tax Act found in section 87 of the Indian Act. In this paragraph, it states that your employment income is only tax-exempt if you earned it while you were on the reserve. If the income was earned elsewhere, you have to pay income tax on it like every other Canadian.

When you file your income tax return, you do not have to include the income that is considered to be tax-exempt.

However, if you live in a province that offers child and family benefits based on family income, reporting the income earned while on a reserve as employment income may maximize these benefits. The Canada Revenue Agency recommends phoning its offices at 1-800-959-8281 to ensure that you are tax-exempt and to get instructions on how to report the income you have earned.

Income Earned on a Reserve

In the early 90s, the Supreme Court of Canada case decided that all factors linking income to a reserve must be looked at in deciding whether or not the income is situated on the reserve. To figure out whether employment income is situated on a reserve, the CRA follows the ruling handed down in the Glenn Williams vs. Canada court decision.

Indian Act Exemption for Employment Income Guidelines

The Indian Act Exemption for Employment Income Guidelines help you figure out whether your employment income is considered to be situated on a reserve and thus tax-exempt.

If your income is described by one of the following situations, it is usually considered to be tax-exempt:

1. When at least 90 percent of your employment duties are performed on a reserve, all of the income is usually considered tax-exempt.
2. When you and your employer both live on the reserve, all of the income is usually considered tax-exempt.
3. When over 50 percent of your job duties are performed on a reserve and your employer lives on the reserve, all of the income is usually considered tax-exempt.
4. All of your income is usually considered tax-exempt if your job duties are connected to non-commercial enterprises that exclusively benefit First Nations peoples who live on reserves, and your employer lives on a reserve and is either:
   • A First Nation band that has a reserve, or a tribal council representing at least one First Nation bands with reserves.
   • A First Nation organization controlled by at least one band or tribal councils, providing that the organization is responsible for the social, cultural, educational or economic development of Indians on the reserve.

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