Business Income

Tax Exemptions and Special Rules for Aboriginal and Northern Peoples

The Canada Revenue Agency (CRA) offers special tax exemptions to qualifying Aboriginal and Northern people. If you qualify, these exemptions can lower your tax bill or you may not have to pay taxes at all.

Aboriginal Tax Exemptions

Section 87 of the Indian Act details scenarios in which Aboriginal Canadians do not have to pay taxes. As a general rule of thumb, property situated on a reserve is immune from taxation, and income counts as property.

If you live, run your business or work, and keep your books on a reserve, you most likely do not have to report your employment or business income on your tax return.

For example, if you own a shop on a reserve, your business income is not taxed. Similarly, if you own a carpeting cleaning company, for example, and you see all of your clients on a reserve, you don’t have to pay taxes. However, if your carpet cleaning company serves clients off the reserve, your income must be reported and taxed.

If your employment or business is split between activities on and off the reserve, a portion of your income will not be taxed. For example, if you do 40 percent of your work on the reserve and 60 percent off the reserve, only 60 percent of your income is taxable.

Aboriginal Employment Taxes

If your employment income is not taxable under the terms of the Indian Act, you do not have to pay payroll taxes or Canada Pension Plan (CPP) payments on it.

In most cases, your employer removes these taxes before he gives you your pay cheque. However, if you qualify, you can request your employer to discontinue taking payroll taxes from your cheque by filing Form TD1-IN with the CRA. If you prefer to have CPP withdrawn from your cheque so that you can claim CPP benefits later, you can opt to do that by filling out form CPT20.

You cannot opt out of Employment Insurance (EI) premiums. If you get ill, have a baby or otherwise qualify to collect EI payments, you do not have to declare those benefits as income if they are based on EI payments you made from income that was not taxed.

Aboriginal Benefits

Certain benefits including the Canada Child Benefit are based on your income. If you don’t have any taxable income, you may want to file a tax return anyway so that you can qualify for this monthly cash benefit.

Northern Residents Deduction

If you lived in a qualifying northern territory or area for at least six months of the tax year for which you are filing, you qualify for the Northern Residents deduction.

The CRA divides northern Canada into two zones. Residents of zone A may claim the full deduction, while residents of zone B may claim half the deduction.

To calculate your deduction, use Form T2222. Then, transfer the deduction amount from that form to line 255 of your income tax return. This deduction is subtracted from your gross income to determine your net or taxable income, which appears on line 236 of your federal income tax return.