October 2011, Number 41
Aboriginal Peoples' status and tax exemptions for pensions
Under the Indian Act, the Canada Revenue Agency (CRA) exempts from tax the personal property of Aboriginal Peoples situated on a reserve. The act states that employment income is considered personal property.
According to CRA's guidelines, employment income for Aboriginal Peoples is tax exempt when the following situations apply:
- the employee performs at least 90% of the employment duties on a reserve
- the employee and the employer reside on the reserve
- the employee performs more than 50% of the employment duties on the reserve, and the employee or employer resides on a reserve
- the employee's employment duties are connected to the employer's non-commercial activities carried on exclusively for the benefit of Aboriginal Peoples who, for the most part, reside on reserves and the employer resides on a reserve.
How tax status affects pensions
For aboriginal OPTrust members who are considered wholly or in part tax exempt due to employment duties on a reserve, this affects the way his or her pension benefits are calculated.
If a portion of the member's employment income is exempt, then a similar portion of his or her OPTrust pension benefit is tax exempt, too. For example, if 50% of a member's annual income was tax exempt due to his or her employment duties on a reserve, at retirement 50% of his or her OPTrust pension income is not subject to income tax.
When to notify OPTrust
Employers with members who satisfy the federal government's criteria indicated above, should complete CRA's Determination of Exemption of a Status Indian's Employment Income (TD1-IN) form along with the member. OPTrust requires a copy of the completed form, when the member:
- ends his or her membership in the Plan
- retires from the Plan
- dies before retirement
- transfers his or her service out of the Plan.
OPTrust's Employer Checklist for Retirements includes a section to indicate if the TD1-IN form is included with the member's retirement documents. When a tax exemption applies for a retiring member, please submit a copy of the form along with the checklist. The form is
available on our website at www.optrust.com.
For more information
The TD1-IN (10) form is available on the Canada Revenue Agency website along with a detailed description of their guidelines and examples. For additional questions on tax exemptions under the Indian Act, please contact CRA at 1-800-959-8281 or www.cra.gc.ca.
For questions about a member's pension benefit, please contact OPTrust's Member and Pensioner Services at 416-681-6100 or 1-800-637-0024.
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