There are some common misconceptions that Canada’s Aboriginal Peoples don’t pay taxes.
While it’s true that some earnings and transactions on reserve lands
are tax-exempt, aboriginals don’t live tax-free and aboriginal
governments can impose direct taxes on reserve or settlement lands.
In general, Aboriginal Peoples pay the same taxes as other
Canadians, aside from some limited exceptions detailed in the Indian
Section 87 of the Act says the personal property of a Status Indian (see: Who’s a “status Indian” and what does it mean?) living on a reserve is tax-exempt. This includes income earned on reserves, with some exceptions.
Aboriginals who live or work off-reserve – approximately 60 per
cent of all Canada’s Aboriginal Peoples, according to Statistics Canada
– pays both federal and provincial tax.
Goods purchased on reserves are also tax-exempt, although aboriginal governments can impose their own taxes.
Aboriginal government tax powers
The federal government allows aboriginal governments to
negotiate for taxation powers in order to generate revenues for their
communities and because of a belief that a government makes more
interested and responsible monetary decisions when the funds come from
its own constituents instead of money transferred from elsewhere.
Both the Indian Act and the First Nations Fiscal
Management Act (FNFMA) empower aboriginal governments to enact certain
taxes on their lands. This includes real property tax, sales tax, income
tax and certain provincial-type commodity taxes like a Goods and
Tax powers aren’t automatic or uniform for aboriginal
governments. They are a typical component of negotiations for aboriginal
self-government and the powers can vary greatly from one community to
Aboriginal taxes do not automatically displace federal or
provincial taxes. However, an aboriginal government can apply to have
those taxes reduced or removed on the corresponding lands where their
own taxes are imposed.
Fact sheet: taxation by aboriginal governments: https://www.aadnc-aandc.gc.ca/eng/1100100016434/1100100016435
About the First Nations Fiscal Management Act: https://www.aadnc-aandc.gc.ca/eng/1393512745390/1393512934976
The Indian Act: http://laws-lois.justice.gc.ca/eng/acts/i-5/FullText.html