Salary or Wages From Employment Duties Performed Partly or Entirely on a Reserve or Premises

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Source deductions of income tax

If an Indian performs employment duties partly or entirely on a reserve or premises, you are not required to withhold income tax from the employment income (or portion thereof) that gives entitlement to the deduction for employment income situated on a reserve or premises.

If the conditions in the following table are met, all of the employment income earned by an Indian gives entitlement to the deduction. If the conditions are not met, only the portion of the income attributable to the employment duties performed on the reserve or premises gives entitlement to the deduction.

Conditions that must be met for all the employment income earned by an Indian to give entitlement to the deduction
Percentage of an Indian's employment duties performed on a reserve or premises Conditions that must be met for all the employment income to give entitlement to the deduction
At least 90% None
More than 50% (but less than 90%)

At least one of the following conditions must be met:

  • The Indian lives on a reserve.
  • You manage and administer the business on a reserve or premises.
50% or less

The following two conditions must be met:

  • The Indian lives on a reserve.
  • You manage and administer the business on a reserve or premises.
Example of how to calculate source deductions of income tax of an Indian employee whose duties are performed both on and outside a reserve

You manage and administer a business on a reserve and pay an Indian employee a gross salary of $500 per week. 40% of the employee's duties are performed on the reserve and 60% are performed outside the reserve. The employee does not live on a reserve.

In this case, the conditions for all the employment income to give entitlement to the deduction have not been met. If 50% or less of the employment duties are performed in a reserve or premises, the Indian must live on a reserve for the full amount of employment income to be deducted in the calculation of taxable income. Consequently, only the portion of the income attributable to the duties performed on the reserve, that is, $200 (40% of $500), is considered to be employment income situated on a reserve or premises and therefore gives entitlement to the deduction.

Consequently, the employer must withhold income tax from the portion of the income attributable to the duties performed outside the reserve, that is, $300 (60% of $500).

If the same employee had lived on a reserve, you would not have been required to withhold income tax, because the conditions would have been met and the full amount of the income ($500) would have given entitlement to the deduction.

Note

An employer that is an Indian, an Indian band, a band council or an Indian organization controlled by one or more similar bands or band councils and exclusively devoted to the social, cultural, educational or economic development of Indians who, for the most part, live on reserves, does not have to withhold income tax on the salary or wages paid to an Indian if the following conditions are met:

  • The employer manages and administers the business on a reserve or premises.
  • The Indian's employment duties are part of the employer's non-commercial activities, which are intended for the well-being of Indians who, for the most part, live on the reserve.

Québec Pension Plan contributions

You are not required to withhold or pay Québec Pension Plan (QPP) contributions with respect to the employment income of an Indian who is entitled to the deduction for employment income situated on a reserve or premises, unless you have made an irrevocable election on form RR-2-V, Election to Participate in the Québec Pension Plan: Indian Employees Whose Employment Is Excepted by Reason of a Tax Exemption, to have all of your Indian employees who reside in Canada and whose work in Québec is excluded from the QPP because of a tax exemption participate in the QPP.

Note

An employer that is an Indian, an Indian band, a band council or an Indian organization controlled by one or more similar bands or band councils and exclusively devoted to the social, cultural, educational or economic development of Indians who, for the most part, live on reserves, does not have to withhold or pay QPP contributions on the salary or wages paid to an Indian if the following conditions are met:

  • The employer manages and administers the business on a reserve or premises.
  • The Indian's employment duties are part of the employer's non-commercial activities, which are intended for the well-being of Indians who live on the reserve.

Québec parental insurance plan premiums

All of the salary or wages paid to an Indian are subject to Québec parental insurance plan (QPIP) premiums, even if the salary or wages are employment income that gives entitlement to the deduction for employment income situated on a reserve or premises.

This is the case for all employers, regardless of whether the employer is an Indian, an Indian band, a band council or an Indian organization.

Contribution to the health services fund

All of the salary or wages paid to an Indian are subject to the contribution to the health services fund, even if the salary or wages are employment income that gives entitlement to the deduction for employment income situated on a reserve or premises. You must include all of the salary or wages paid to an Indian in your total payroll used to calculate your health services fund contribution rate.

Note

An employer that is an Indian, an Indian band or a band council does not have to pay the contribution to the health services fund on the salaries and wages paid to employees (whether or not they are Indians) from an establishment situated on a reserve.

Moreover, no contribution to the health services fund is required with respect to salaries or wages that are reasonably attributable to the non-commercial activities of an Indian organization resident on a reserve, which are intended for the well-being of Indians who live on a reserve. One of the purposes of the organization must be the social, cultural, educational or economic development of Indians who live on a reserve, and the organization must fall within the jurisdiction of one or more bands or one or more band councils representing one or more bands.

In all other cases, the employer must pay the contribution to the health services fund, even if the employer is an Indian, an Indian band, a band council or an Indian organization.

Contribution related to labour standards

All of the salary or wages paid to an Indian are subject to the contribution related to labour standards, even if the salary or wages are employment income that gives entitlement to the deduction for employment income situated on a reserve or premises.

All employers, including Indian employers, are subject to the contribution related to labour standards.

Note

An employer that is an Indian band or a band council is not subject to the contribution related to labour standards with respect to activities of the Indian band or band council that relate to their “Indianness,” within the scope of the powers conferred on the bands and band councils by Canadian legislation, under the Indian Act and the Cree-Naskapi (of Quebec) Act, with respect to band administration.

Contribution to the Workforce Skills Development and Recognition Fund

You must include all of the salary or wages paid to an Indian in your total payroll used to calculate your health services fund contribution rate, your participation in workforce skills development and, if applicable, your contribution to the Workforce Skills Development and Recognition Fund (WSDRF).

Note

An employer that is an Indian, an Indian band or a band council is not required to include the salaries and wages paid to employees (whether or not they are Indians) from an establishment located on a reserve in its total payroll used to calculate its participation in workforce skills development and, if applicable, its contribution to the WSDRF.

In all other cases, the employer must participate in workforce skills development if the total payroll is over $2 million for the year, even if the employer is an Indian, an Indian band or a band council.

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