Canada: Additional tax relief for First Nations, indigenous individuals (COVID-19)

Canada: Additional tax relief for First Nations

The Canada Revenue Agency (CRA) released guidance to address issues that may arise as a result of coronavirus (COVID-19) pandemic-related workplace or territorial restrictions for First Nations or indigenous taxpayers (that is, restrictions that may temporarily cause employees or employers to work or reside off-reserve).

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The administrative guidance applies from 16 March to 31 December 2020, and may be extended if necessary.

The CRA announced it will generally continue to apply its existing guidelines to determine whether the employment income of certain individuals who live or work on a reserve, or whose employers reside on a reserve, is exempt from income tax.


Background

In general, the employment income of indigenous persons is exempt from income tax if the income is “situated on a reserve.” Under administrative guidelines for determining whether employment income is situated on a reserve, and therefore exempt from tax, certain conditions must be satisfied (such as a percentage of employment duties are performed on a reserve). An employee is considered to live on a reserve if the principal place of residence and the center of the daily routine is on a reserve. An employer that has an established office on a reserve is generally considered to reside on a reserve only if its central management and control is located on a reserve throughout the year. One of the key factors in this determination is the location where the meetings of the board of director take place (although this is not the only factor).


COVID-19 exceptions

The CRA stated it will allow the following exceptions when an employee or employer temporarily works or resides off-reserve because of COVID-19 workplace or territorial travel restrictions.

  • If an employee usually performs all or part of the job on a reserve, but has temporarily been working off-reserve only because of the workplace restrictions, this will not necessarily affect the person’s exemption status.
  • If an employee who normally lives on-reserve is staying in off-reserve housing only because of territorial travel restrictions, the employee will still be considered to be a resident on the reserve if the individual returns home as soon as the restrictions are lifted.
  • If an employer that has established a head office with central control on a reserve but has had to move off-reserve because of workplace restrictions, the employer generally will be considered to be a resident of the reserve.

The CRA noted that determining employer residency involves multiple factors and will be determined on a case-by-case basis.

Read a December 2020 report prepared by the KPMG member firm in Canada

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