This page explains Section 87 in plain language so you can understand the landscape and ask better questions with confidence. The information is current as of 2026. Because every situation turns on its own facts, this page is general education and has not been reviewed by a tax professional — so before you act on any specific claim here, confirm it with a qualified tax advisor who has Indigenous tax experience. AFOA Canada (afoa.ca) and many band offices can refer you to one.
Section 87 of the Indian Act says that the personal property of a Status Indian or a band, situated on a reserve, is exempt from taxation. That one sentence has shaped decades of financial decisions — and decades of confusion.
Here's what it actually means for your money.
The basics
If you have Status (registered under the Indian Act), certain income and property can be tax-exempt. The key question is always: is the property "situated on a reserve"?
For physical things (a house on reserve, a car kept on reserve), this is straightforward. For income and investments, it gets more nuanced.
Money isn't physical — it doesn't sit in one place. So the courts developed a "connecting factors" test to figure out where income is considered to be situated. This comes from the Supreme Court's decision in Williams v. Canada.
Answer a few questions about your work and residence to see how Section 87 likely applies to you. Open the Section 87 Checker →
Employment income
Whether your employment income is exempt depends on several connecting factors. The most important ones:
- Where you do the work — duties performed on reserve lean toward exempt
- Where your employer is located — an employer based on reserve matters
- Who benefits from the work — work that serves reserve residents weighs in your favour
- Where you live — residence on reserve is one factor (but not the only one)
Scenario 1
You live on reserve and work for the band office on reserve.
Likely fully exempt. All connecting factors point to reserve.
Scenario 2
You live on reserve but commute to work in the city for a private company.
Likely not exempt. Your duties are off reserve and your employer isn't connected to a reserve. Living on reserve alone usually isn't enough.
Scenario 3
You work for an Indigenous organization based on reserve, but you work from a city office.
This is the grey zone. Some of the connecting factors point to reserve (employer location, benefiting reserve residents), others don't (where you perform the work). It depends on the specific facts.
Scenario 4
You're a teacher at an on-reserve school.
Typically exempt. The work is performed on reserve, the employer is on reserve, and the work benefits reserve residents directly.
Scenario 5
You live on reserve and work a hybrid job — some days remote from home on reserve, some days at an office off reserve.
This is the post-COVID grey zone. The connecting factors become split — some duties are performed on reserve (your remote work days), some off (your office days). CRA may allow a partial exemption proportional to the time worked on reserve, but this is not guaranteed and depends on the specific facts.
Key factors: the proportion of your working time spent on reserve, where your employer is located, and who benefits from the work. If you work three days a week from home on reserve and two days at an office in the city, a partial exemption is possible — but you need documentation.
Strongly recommend: keep a detailed log of your work schedule (which days on reserve, which days off), and consult a tax professional who understands Section 87. This area of tax law is still evolving as remote work becomes permanent.
If your employer considers your income exempt, your T4 slip will show the income in Box 71 (Indian exempt employment income). But just because an employer puts it there doesn't guarantee CRA will agree. And just because they don't put it there doesn't mean you can't claim it. Know your own situation.
Investment income
This is where many people lose money they shouldn't. Investment income — interest, dividends, capital gains — is generally not exempt unless the investment itself is situated on reserve.
Most banks, brokerages, and mutual fund companies are located off reserve. Even if you're Status and live on reserve, your RRSP at a major bank is typically not considered situated on reserve.
TFSA
Good news: TFSA growth is already tax-free for everyone. You don't need Section 87 for this. A TFSA is often the single most powerful savings tool regardless of your status.
RRSP
If your income is already tax-exempt, an RRSP contribution may offer little benefit — there's no tax to defer, and withdrawals in retirement are generally taxable. For many people with exempt income, a TFSA is the better fit. This is worth running the numbers on with a tax advisor before contributing.
FHSA (First Home Savings Account)
If your income is tax-exempt, the deduction doesn't help. But the growth is tax-free, similar to a TFSA. Whether this account makes sense depends on your specific situation.
Peace Hills Trust / On-Reserve Financial Institutions
Deposits held at financial institutions located on reserve have historically had a stronger argument for exemption, and this has been tested in Canadian courts (see Bastien, Recalma, Dubé). The outcome depends heavily on the specific facts — where the institution is situated, the nature of the deposit, and the connecting factors. Before relying on this strategy for meaningful amounts, get advice from a tax professional familiar with Section 87 investment income.
Not every advisor is familiar with Section 87. If someone recommends an RRSP and your employment income is exempt, make sure you understand how the two interact before contributing. The simple question that opens it up: "How does this work with my Section 87 status?"
Government benefits
Common benefits and how Section 87 may apply. These rules are nuanced — the summaries below are a starting point, not a final answer.
- EI (Employment Insurance) — whether EI benefits are exempt generally follows the tax treatment of the employment that generated them. If the underlying work was exempt, EI based on that work may be exempt too. Residence alone usually isn't enough.
- Social assistance — assistance received while living on reserve is typically exempt.
- CPP — whether CPP benefits are exempt generally tracks whether the underlying contributions came from exempt employment, not just current residence.
- OAS — has its own rules tied to Canadian residence. Section 87 treatment depends on the specific facts; confirm with a tax professional.
- Canada Child Benefit — already non-taxable for everyone.
- GST/HST credit — already non-taxable, but filing your return is required to receive it.
Many benefits (GST credit, CCB, GIS) are calculated from your tax return. If you don't file, you won't receive them. You can file and report exempt income — you won't owe tax on it, but you'll qualify for the benefits you're entitled to.
Practical steps
- Know your connecting factors. Where do you work? Where is your employer? Who does your work serve? Where do you live? These answers determine your exemption.
- File your taxes every year. Report exempt income properly. Use Form T90 if needed. Claim the benefits you're entitled to.
- Think twice before buying RRSPs. If your income is exempt, a TFSA is almost always the better choice.
- Ask the right question. When any financial professional recommends something, ask: "How does this work with Section 87?"
- Keep records. If CRA questions your exemption, you'll need to show the connecting factors. Keep pay stubs, employment contracts, and anything that shows where your duties are performed.
Going deeper
Section 87 is one piece of a bigger picture. Understanding your tax status is a form of financial sovereignty — it means you know what you owe, what you don't, and nobody can take what isn't theirs.
If your tax situation is complex, look for an accountant or tax preparer who has experience with Section 87. AFOA Canada maintains resources for finding qualified professionals. Many band offices also offer tax clinic referrals during tax season.
AFOA Canada (afoa.ca) offers financial management training and certification. CRA's Indigenous Peoples page has detailed Section 87 guidance. See the full Resources page for more.
Last updated June 2026