COVID-19 raises employment tax exemption issues for Indigenous peoples

The Canadian Revenue Agency (CRA) released an update November 30, 2020, on employment tax exemption issues that have been raised by the COVID-19 pandemic. Below is a summary of this announcement:

Employee who normally works on reserve and Guideline 1 or 3 applies to exempt all of the employment income

An employee who normally works on reserve, and Guideline 1 or 3 applies to exempt 100 percent of their employment income, may now have to telework from home offices off reserve. Administratively, if the employee has been working off reserve only because of workplace restrictions, the CRA will consider the days where the employee was working off reserve because of workplace restrictions to count towards the 90-percent requirement for Guideline 1 and the 50-percent requirement for Guideline 3 for calculating the percentage of employment duties performed on a reserve. This will be the CRA's position where, among other things, the individual usually performs the duties of employment on a reserve and intends to work, and does work, at the on-reserve location as soon as the restrictions are lifted.

Employee who normally performs a part of their employment duties on reserve

The Guideline 1 pro-rated exemption applies where an employee performs less than 90 percent of their duties on reserve. As a result of workplace restrictions, some employees, who would have otherwise worked partially on reserve, now must telework from home offices off reserve. Administratively, the CRA will consider the number of days or hours, as the case may be, during which the employee was forced to work off reserve only due to workplace restrictions, to count towards the prorated exemption under Guideline 1.

Employer who normally resides on reserve

For purposes of Guidelines 2, 3 or 4, employers reside on reserve if their central management and control functions occur on reserve throughout the year. One of the key factors is the location of board meetings. Administratively, where the central management and control functions are moved off reserve due to workplace restrictions, the CRA will not consider the employer to become resident off reserve, as long as the central management and control was clearly and generally established on reserve before the workplace restrictions.

Regardless, the determination of the central management and control of a corporation is based on several factors, of which the location of board meetings is only one element. The CRA may still conclude that an employer is resident off reserve where the actual management and control takes place even though the board meetings have taken place on reserve.

Employee who normally resides on reserve

Guideline 2 exempts employment income where both the employer and the employee reside on reserve. Employees who rely on Guideline 2 to exempt their income, since they perform all of their duties off reserve, may be restricted from returning to their homes on reserve because of travel restrictions. Administratively, the CRA will consider that employees who normally reside on reserve, but are staying off reserve because of territorial restrictions, to be resident on reserve. This applies where, among other things, the employee usually resides on reserve and returns to their home as soon as the restrictions are lifted.

MNP continues to stay informed to ensure the needs of our Indigenous clients are met, developing viable tax solutions in complex circumstances that often exist exclusively within your environment.

For more information, contact a member of MNP’s Indigenous Services team.

Visit the CRA website for more details HERE.