How does the Indian Act tax exemption apply to employment income?

by TurboTax• Updated 1 week ago

The CRA has detailed guidelines to help determine whether, as a First Nations individual, your employment income is exempt from income tax. Here’s a summary of how the guidelines apply to one who is a status Indian as defined under the federal Indian Act.

Guideline 1

When at least 90% of an Indian’s income is from working at their job or position on a reserve, all of the income from that employment will usually be exempt from income tax.

This Guideline has a Proration Rule: when less than 90% of the work is performed on a reserve, the exemption is prorated to apply only to the proportion of the income earned on a reserve.

Guideline 2

When the employer is resident on a reserve, and the Indian employee lives on a reserve, all of the income from that employment will usually be exempt from tax.

Guideline 3

When over half of the Indian’s work is done on a reserve, and either the employer is resident on a reserve or the Indian lives on a reserve, all of the income from all of that work will usually be exempt from tax.

Guideline 4

If the employer is resident on a reserve and is:

An Indian band which has a reserve
A tribal council representing one or more Indian bands which have reserves, or
An Indian organization controlled by one or more such bands or tribal councils
An organization dedicated to the development of Indians who mostly live on reserve,

and if the Indian’s work for that employer is part of the employer’s non-commercial activity for the benefit of Indians mostly living on a reserve, all of the Indian’s income from that employment will usually be tax-exempt.

Detailed information can be found on Form TD1-IN, the CRA Determination of Exemption of an Indian's Employment Income form.

Claiming your income in TurboTax

TurboTax Online

Entering your personal information:

Complete the Personal Info section to help ensure optimal results.
Answer Yes to the question “Do you have income that is exempt from tax under the Indian Act?”

Entering your T4 information:

Select Find from the TurboTax menu, enter T4 in the search box, select T4 Employment Income, then select Go.
At T4 Summary, select Add T4.
At how do you want to enter your T4? select:
- Upload a copy if you have a digital copy of your T4, and if not,
- Type it in myself.
Select Continue.
Enter the information from your T4 slip, including the amount of exempt employment income from Box 71, then select:
- Save and Add Another T4, and repeat entering information, or
- Save and Continue if there are no more T4 slips for entry.
At T4 - Summary, select Done With T4 Slips.
From the side navigation panel, select Review > Income Exempt Under the Indian Act.
At Income Exempt Under the Indian Act, complete the form. The CRA will use this information to administer certain benefits that may apply to you.

TurboTax Desktop

Entering your T4 information:

Select the Find icon from the TurboTax menu. Enter T4, select T4 Employment income, then select Go.
At Entering your federal T-slips page, check the box for T4, then select Continue.
Enter the information from your T4 slip, including the amount of exempt employment income from Box 71, then select:
- Enter New T4, and repeat entering information, or
- Done woth T4 if there are no more T4 slips for entry.
At T4 - Summary, select Done With T4 Slips.
From the side navigation panel, select SUM UP, then select Income Exempt Under the Indian Act.
At Income Exempt Under the Indian Act, select Yes, then complete the form. The CRA will use this information to administer certain benefits that may apply to you.
Select Continue.