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).
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.
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).
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.
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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