Income Tax Guidelines for Aboriginals

By Victoria E. Turnbull

Income Tax for Aboriginals

“Aboriginal people are subject to the same tax rules as other Canadian residents unless their income is eligible for the tax exemption under section 87 of the Indian Act”. Income Tax for Aboriginals, Under section 87 of the Indian Act, is exempt from tax, only if the employment income is stationed on a reserve. If your income falls within these guidelines, you do not have to include the income on your personal income tax return unless it would be advantageous to your personal situation. For example, most Canadian provinces offer a wide range of benefits and programs to its residents. Most of these benefits are based on family net income. If you are including your tax exempt income on your personal income tax return for these purposes, make sure you use the appropriate lines.

Get the Answers You Need About Income Tax for Aboriginals

Non-Taxable income: Dividends, Investments, Rental Income, and RRSP’s

• Dividends are non-taxable as long as the corporation operates solely on a reserve.
• Investment Income is non-taxable as long as the income is situated on a reserve. For example: The financial institution in which you purchase and redeem your investment must be located on a reserve
• Rental Income is non-taxable as long as the physical property is located on a reserve. However, if you rent a trailer to someone ‘off reserve’ for use ‘off of the reserve’ your income from the rental will be considered taxable.
• Registered Retirement Savings Plans – If the income you earn is 100% tax exempt, you cannot claim your RRSP contributions on your personal income tax return. In turn, you do not have to claim any withdrawals from your RRSP on your personal income tax return. However, since your RRSP contribution limit is calculated based upon taxable income from previous years, you may not have any room to contribute to your RRSP’s. For example: If your income has always been tax exempt, you will not have any contribution room in your RRSP’s. This means that if you do contribute to your RRSPS, you will exceed your contribution limit and you will be penalized.

If you are an Aboriginal whose income is fully tax exempt, A RRSP may not be the best choice for you when it comes to a savings plan (due to the penalties involved with exceeding your contribution limit as stated above). A Tax Free Savings Account may be the more attractive option for you as the contribution limit is not based on taxable income, but it is a set limit for each individual. Read more about TFSA’s here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html.

If you have any questions about benefits available to Aboriginals, or about income tax for aboriginals, feel free to contact me directly at 289-389-2694 or email me at victoria@myhamiltonaccountant.com.

Disclaimer:

THIS ARTICLE deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other
appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or
organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of
liability for its contents or for any consequences arising from its use.