Working from home on-reserve due to COVID-19? You may qualify for an income tax exemption

First Nations people who live on a reserve and have been working from home for an off-reserve employer may qualify for tax-free income. 

Pelletier-Demerah is a member of Fort Williams First Nation and works as an administrative assistant at Lakehead University in Thunder Bay, Ont. 

Shortly after returning home from a family trip to Cuba last spring, Pelletier-Demerah found herself working from home as the country began shutting down because of the COVID-19 pandemic. 

She said everything happened so fast. 

"I went back to work and we were supposed to have the annual student powwow and everything got stopped," she said.

"We were able to work from home right from there."

She wasn't sure how long she'd be working from home on reserve, but by August she submitted her paperwork for a tax exemption.

The form Pelletier-Demerah had to fill out with her employer is a TD1-IN Determination of Exemption of an Indian's Employment Income, which can be found on the Canada Revenue Agency website. Pelletier-Demerah said it was easy for her to get her tax exemption because Lakehead University was supportive and accommodating. 

"It was like having a little savings account," she said.

"It was nice getting that chunk of money back."

Mindy Wight is an Indigenous tax service and tax specialist in Prince George, B.C., with MNP, a national accounting, tax and business consulting firm.

Wight, who is a member of Squamish First Nation, said she has received a lot of questions around tax exemption when working from home on a reserve. 

"If they're required to work from home and it's on reserve, then that income is situated on reserve for that time," she said.

There are four guidelines on the Canada Revenue Agency website that determine whether an individual is eligible for the employment income tax exemption under section 87 of the Indian Act. 

According to the first guideline, if at least 90 per cent of the duties of employment are performed on a reserve then all of the employment income is exempt from tax. 

Under guideline 3, if more than 50 per cent of the employment duties are performed on a reserve and the employee lives on a reserve then all of the employment income is exempt from tax. 

The Canada Revenue Agency says the most relevant location is the one where the employee has to perform the duties of employment under the terms of employment. If an employee is required to work from home, as per the terms of their employment agreement, for a certain period of time then that is the location where the employee had to perform the duties of employment. 

In an emailed statement, the Canada Revenue Agency said the pandemic may have caused changes to the workplaces of individual First Nation members.

"These individuals may have been required to work from their homes, located on a reserve. If a First Nation member lives on a reserve and was required to work from home, their employment income could now be fully or partially exempt from tax under section 87 of the Indian Act."

It suggested First Nation members visit the CRA website to find out if their income is exempt.