2009 Ruling 2008-0264441R3 - Application of paragraph 149(1)(c) of the ITA

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Is the XXXXXXXXXX a public body performing a function of government as that phrase is used in paragraph 149(1)(c) of the Act?

Position: Yes

Reasons: The XXXXXXXXXX is a public body because it was created as a result of the settlement of land claims in that area. It is operated by a board of directors elected by its members. In addition, members can require meetings be held and remove the directors. The directors must present a report to the members each year. Each member has one vote on issues raised at the annual general meeting. The XXXXXXXXXX is performing a function of government because it is currently negotiating a self-government agreement XXXXXXXXXX

XXXXXXXXXX 								2008-026444	

XXXXXXXXXX , 2009

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the above-named taxpayer. We also acknowledge your subsequent submissions of XXXXXXXXXX . As well, we note that we have had several telephone conversations with you (XXXXXXXXXX ) regarding this request.

We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request is:

(i) in an earlier return of the taxpayer or a related person,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,
(iii) under objection by the taxpayer or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to the taxpayer or a related person.

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

FACTS:

1. The XXXXXXXXXX was entered into by the Government of Canada and the XXXXXXXXXX on XXXXXXXXXX . The XXXXXXXXXX deals with lands in the XXXXXXXXXX . After the XXXXXXXXXX was ratified by the XXXXXXXXXX in a referendum the XXXXXXXXXX was enacted into law by Parliament in the XXXXXXXXXX . This Act received royal assent on XXXXXXXXXX .

2. XXXXXXXXXX required the XXXXXXXXXX to assign to XXXXXXXXXX any rights and all obligations to which the XXXXXXXXXX would be subject, prior to the date the XXXXXXXXXX was enacted into law.

3. A XXXXXXXXXX is defined in XXXXXXXXXX to mean a trust, society or Corporation established pursuant to relevant federal or territorial legislation. A XXXXXXXXXX which administers capital transfers pursuant to XXXXXXXXXX , amounts payable pursuant to section 10.1.2, or land transfers pursuant to 19.1.2, must be structured such that all members or shareholders of the XXXXXXXXXX have an equal interest therein as at the date of settlement legislation and the XXXXXXXXXX must be owned and controlled by its members or shareholders. Membership or shareholdings cannot be transferred.

4. The XXXXXXXXXX is required to maintain a XXXXXXXXXX , which identifies all rights and obligations assigned to them pursuant to section XXXXXXXXXX .

5. XXXXXXXXXX (the "Corporation") was incorporated on XXXXXXXXXX , by letters patent, under Part II of the Canada Corporations Act, as a Corporation without share capital. Its mailing address is XXXXXXXXXX . Its business number is XXXXXXXXXX . The Corporation is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.

6. The Corporation is a XXXXXXXXXX and as such has been assigned the following rights and obligations as allowed XXXXXXXXXX .

a. The Corporation holds XXXXXXXXXX

b. The Corporation bears the responsibility, including the cost, for conducting all votes held in the XXXXXXXXXX for the purpose of accepting a person for enrolment as XXXXXXXXXX if the person is a Canadian citizen of aboriginal ancestry resident in the settlement area, and was accepted by XXXXXXXXXX at any time following the date of settlement legislation. Accepted by XXXXXXXXXX means that a person was sponsored by a person eligible to be enrolled and was approved by a process to be determined by the participants in the XXXXXXXXXX concerned.

c. The Corporation has been given the right to participate in any constitutional conference or similar process for reform of the constitution of the XXXXXXXXXX .

d. The XXXXXXXXXX , established by the XXXXXXXXXX , has the mandate to manage wildlife in the settlement area. This board will not issue licences, hear and decide applications for individual commercial undertakings or enforce legislation that would affect XXXXXXXXXX unless the Corporation approves of the XXXXXXXXXX 's course of action or decision.

e. The XXXXXXXXXX contains a XXXXXXXXXX . This agreement provides that the government shall enter into negotiations with the XXXXXXXXXX in each XXXXXXXXXX where a written request to negotiate is made by a XXXXXXXXXX . The Corporation is the XXXXXXXXXX assigned the right to negotiate for a self government agreement with respect to the XXXXXXXXXX .

7. Currently, the Corporation is engaged in negotiations with the XXXXXXXXXX

8. The objects of the Corporation, as described in its letters patent, are:

to be a XXXXXXXXXX as described in XXXXXXXXXX and to be a beneficial owner of lands selected within the boundaries of the XXXXXXXXXX and lands and mines and minerals selected within the boundaries of the XXXXXXXXXX ;
a. to promote the general well being of all of the members of the Corporation;
b. to solicit, accept, receive, acquire by purchase, lease, agreement, grant, donation, legacy, gift, bequest or otherwise any kind of real or personal property and to enter into and carry out agreements, undertakings and conditions in connection therewith;
c. to acquire, hold, purchase, convert, lease, mortgage, sell or dispose of any asset owned by the Corporation, and to invest and re-invest any principal in such manner as may from time to time be determined;
d. to disburse and distribute money and property in the furtherance of the objects of the Corporation;
e. to exercise and enjoy all voting, participation and other rights, privileges and benefits arising directly or indirectly from the ownership of shares in companies;
f. to establish, maintain and operate workshops and trainings and educational centres and to train poor and needy persons in gainful trades, professions and occupations with a view to enabling such persons to become self-supporting;
g. to organize and conduct social and cultural events;
h. to develop and foster community spirit;
i. to promote organized athletic games, drama, art, music, handicrafts, nursery schools, hobbies, recreations, adult education, civil defence, social service and other community endeavours;
j. to promote the conservation of fish, game and wildlife;
k. to promote public interest in the history of the XXXXXXXXXX and encourage research therein;
l. to conduct and promote historical and archaeological research;
m. to maintain a library and museum;
n. to encourage creative writing in all forms;
o. to assist in the construction or reconstruction of low rental housing units for elderly citizens of low income who are unable to purchase adequate accommodation according to their needs, and for such purposes only to construct, hold and manage low rental housing projects;
p. to cooperate with other organizations, whether incorporated or not, which have objects similar in whole or in part to the objects of the Corporation;
q. to do all such other things as are incidental or conducive to the attainment of the above objects.

To be a member of the Corporation, an individual must be a person who has been XXXXXXXXXX and must have XXXXXXXXXX .

9. Members may give up their membership in the Corporation by delivering to the Corporation a written resignation and providing a copy of the same to the secretary of the Corporation.

10. The Corporation is managed by a board of directors, consisting of between 3 and 15 individuals. To be a director, individuals must be at least 19 years of age and be able to enter into legally binding contracts. An individual is not required to be a member of the Corporation in order to be a director. A majority of directors constitutes a quorum.

11. Directors are elected for four year terms by the members at the annual general meeting of members. A minimum of one director and a maximum of four directors are elected from individuals nominated by the XXXXXXXXXX . Each director has one vote.

12. The office of director is automatically vacated should any of the following events occur:

a. the director delivers a written resignation to the secretary of the Corporation;
b. a court finds the director to be of unsound mind;
c. the director becomes a bankrupt, or suspends payment or makes an arrangement with his creditors;
d. a resolution is passed at a special general meeting of members removing the director from office;
e. if a chief, sub-chief or councillor of the XXXXXXXXXX is elected director, and prior to the term of office of the director being completed the director ceases to be a chief, sub-chief or councillor; or
f. the death of the director.

13. In the event a vacancy occurs on the board of directors due to any occurrence as described in 13 herein, the board of directors may by majority vote elect a member of the Corporation to fill the vacancy.

There must be at least one meeting of the directors per year. The meetings may be held at any time or place as determined by the directors providing at least 48 hours written notice of such meeting is given to each director, other than by mail. If notice of a meeting is being issued by mail then the notice must be sent at least 14 days prior to the meeting. If all the directors consent either generally or in respect of a particular meeting, a director may participate in the meeting or committee by conference telephone or other method of communication as would permit all individuals participating to hear each other. Any director participating in this manner is deemed to have been present at the meeting.

14. Unless remuneration is approved in a general meeting of the members, the directors are not remunerated for their service to the Corporation, and no director can profit from this position. Directors may be reimbursed for reasonable expenses incurred in the performance of duties. A director may also serve as an officer of the Corporation or may operate in another capacity and be remunerated for these activities.

15. The board of directors may appoint agents, and hire employees as is necessary from time to time. Such persons will have authority as given to them by the board of directors and will perform duties as directed by the board of directors at the time of appointment.

16. The amount of remuneration, if any, for all officers, agents, employees and committee members shall be fixed by the board of directors by resolution. This resolution shall have force and effect only until the next meeting of members when the resolution shall be confirmed by resolution of the members. In the absence of such confirmation by the members, the remuneration to such officers, agents and employees and committee members will cease to be payable from the date of such meeting of the members.

17. Any director, officer or other person who has undertaken or is about to undertake any liability on behalf of the Corporation or any company controlled by one of these persons and the person's heirs, executors and administrators, and estate and effects, respectively, will be at all times indemnified and saved harmless out of funds of the Corporation from and against:

a. all costs, charges and expenses which such director, officer or other person sustains as a result of any action, suit, or proceedings brought against him or her, or in respect of any act done by him or her, in the execution of the duties of his or her office; and

b. all other costs which he or she sustains or incurs in relation to the affairs of the Corporation, except such costs as are occasioned by his or her wilful neglect or default.

There may be established an executive committee consisting of at least 3 members, one of whom must be a director of the Corporation. The executive committee members are appointed by the board of directors. The executive committee exercises powers given to it by the board of directors. Any executive committee member may be removed by a majority vote of the board of directors. The executive committee members are only remunerated for this position if remuneration is approved at a general meeting of the members. Executive committee members are eligible to have reasonable expenses reimbursed.

18. Meetings of the executive committee may be held at any time and place to be determined by the members provided that 48 hours written notice is given, other than by mail, to members. Notice by mail must be given 14 days prior to the meeting. Two members, one of whom is a director, are required for a quorum.

19. The directors may administer the affairs of the Corporation and can enter into, for the Corporation, in its name, any kind of contract which the Corporation may lawfully enter into and generally may exercise all such other powers and do all such other acts and things as the Corporation is, by its charter or otherwise, authorized to exercise and do.

20. The directors have power to authorize expenditures on behalf of the Corporation and may delegate by resolution to an officer or officers of the Corporation the right to employ and pay salaries to employees. The directors have the power to enter into a trust arrangement with a trustee for the purpose of creating a trust fund in which the capital and interest may be made available for the benefit of promoting the interest of the Corporation in accordance with such terms as the board of directors may prescribe.

21. The board of directors will take such steps as they may deem necessary to enable the Corporation to acquire or receive legacies, gifts, grants, settlements, bequests, endowments and donations of any kind for the purpose of furthering the objects of the Corporation.

22. The board of directors may appoint committees whose members will hold their offices at the will of the board of directors. The board of directors will determine the duties of these committees.

23. The officers of the Corporation are the president, vice-president, secretary and treasurer and any such other office as the board of directors may by by-law determine. Any two offices may be held by the same person. Officers need not be directors or members of the Corporation with the exception of the president and vice-president who must be both directors and members.

24. The term of office for all officers is four years and any officer may be re-elected for a subsequent term. Subject to 26 herein all officers are appointed by resolution of the board of directors.

25. An office is vacated if:

a. an officer resigns by delivering a written resignation to the directors;
b. a court determines an officer is of unsound mind;
c. an officer becomes bankrupt or suspends payments or makes a deal with his creditors; at a special meeting of directors a resolution is passed by a majority of the directors present that the officer be removed;
d. the president or vice-president, who held the position of chief or sub-chief of the XXXXXXXXXX upon becoming an officer, ceases to hold the ceases to hold the position of chief or sub-chief of the XXXXXXXXXX as the case may be; or
e. the officer dies.

26. If an office is vacated for one of the reasons outlined in 28 herein the board of directors may, by majority vote, appoint a member to fill the vacancy.

27. The president is the chief executive officer of the Corporation. The president presides at all meetings of the Corporation and of the board of directors. The president will manage the affairs of the Corporation. As well, the president ensures that all orders and resolutions of the board of directors are put into effect.

28. The vice-president, in the absence or disability of the president, will perform the duties and exercise the powers of the president and will perform such other duties as are from time to time imposed upon him by the board of directors.

29. The treasurer has custody of all funds and securities of the Corporation and will keep full and accurate accounts of all assets, liabilities, receipts and disbursements of the Corporation in the books belonging to the Corporation. The treasurer will deposit all monies, securities and other valuable effects in the name and to the credit of the Corporation in a chartered bank or trust company or in the case of securities, with a registered dealer in securities as may be designated by the board of directors. The treasurer disburses funds of the Corporation as directed by the proper authority and will obtain proper vouchers for such disbursements. The treasurer will provide to the president and directors at the regular meeting of the board of directors or whenever they may require it, an accounting of all the transactions and a statement of the financial position of the Corporation. The treasurer will also perform such other duties as may from time to time be directed by the board of directors.

The board of directors may direct the secretary, by resolution, to carry on the affairs of the Corporation generally under the supervision of the officers. The secretary will attend all meetings and act as clerk and record all votes and minutes of all proceeding in the books to be kept for that purpose. The secretary will provide notice of all meetings of the members and of the board of directors and will perform such other duties as may be prescribed by the board of directors or president, under whose supervision the secretary will be. The secretary will be the custodian of the seal of the Corporation, which he or she will deliver only when authorized by a resolution of the board of directors to do so and to such person or persons as may be named in the resolution.

30. The duties of all other officers of the Corporation will be based on the terms of their engagement or the duties that the board of directors requires of them.

31. Contracts, documents or any instruments in writing requiring the signature of the Corporation, must be signed by the president and one other officer and all contracts, documents and instruments in writing so signed will be binding upon the Corporation without any further authorization or formality. The directors will have the power from time to time by resolution to appoint an officer or officers on behalf of the Corporation, and to sign specific contracts, documents and instruments in writing. The directors may give the Corporation's power of attorney to any registered dealer in securities for the purposes of the transferring of and dealing with any stocks, bonds and other securities of the Corporation. The seal of the Corporation when required may be affixed to contracts, documents and instruments in writing signed by any officer or officers appointed by resolution of the board of directors.

32. The annual or general meeting of the members will be held at the headquarters of the Corporation, XXXXXXXXXX .

33. At every annual meeting, in addition to any other business that may be transacted, the report of the directors, the financial statement and the report of the auditors will be presented and auditors appointed for the upcoming year. The members may consider and transact any business either special or general at any meeting of the members. The board of directors or the president or vice-president have power to call, at any time, a general meeting of the members of the Corporation. The board of directors will call a special general meeting of members on written requisition of the majority of the members. XXXXXXXXXX members present in person or by proxy at a meeting will constitute a quorum.

34. Fourteen days written notice must be given to each member of any annual or special general meeting of members. Notice of any meeting where special business will be transacted should contain sufficient information to permit the member to form a reasoned judgment on the decision to be taken. Notice of such meeting of members must remind the member that he or she has the right to vote by proxy.

35. Each member present at a meeting has the right to exercise one vote for him or herself and one vote for each proxy that he or she holds. A member may, by means of a written proxy, appoint a proxy holder to attend and act at a specific meeting of members, in the manner and to the extent authorized by the proxy. A proxy holder must be a member of the Corporation.

No error or omission in giving notice of any general or annual meeting or any adjourned meeting, whether annual or general, of the members of the Corporation will invalidate such meeting or make void any proceedings and any member may at any time waive notice of any such meeting and may ratify, approve and confirm any or all proceedings taken at such meeting. For the purpose of sending notice to any member, director or officer for any meeting or otherwise, the address of the member, director or officer is his last address recorded on the books of the Corporation.

36. The minutes of the board of directors or the minutes of the executive committee are not available to the general membership of the Corporation but are available to the directors.

37. At all meetings of members of the Corporation every question will be determined by a majority of votes unless otherwise specifically provided by statute or by the by-laws.

38. Unless changed by the board of directors, the year end of the Corporation is XXXXXXXXXX .

39. The by-laws of the Corporation not contained in the letters patent may be repealed or amended by by-law enacted by a majority of the directors at a meeting of the board of directors and sanctioned by an affirmative vote of at least two-thirds of the members at a meeting duly called for the purpose of considering the said by-law. The repeal or amendment of any by-law cannot be enforced or acted upon until the approval of the Government of Canada's Minister of Industry, Science and Technology has been obtained.

40. The Corporation owns XXXXXXXXXX which is the business arm of the Corporation. XXXXXXXXXX interests in the following Corporations:

XXXXXXXXXX

41. XXXXXXXXXX The Association's mandate was to:

a. assist the XXXXXXXXXX in coordinating game management and harvesting programs;
b. obtain a business license to provide a service to the hunters and trappers of the XXXXXXXXXX , and further the aims of the association by putting all proceeds from the organization back into the organization; purchase equipment for members use which will make the harvesting of renewable resources more economical; and
c. enter into such contracts and ventures as are deemed beneficial to the aims of the association.

42. The Association changed its name XXXXXXXXXX .

43. XXXXXXXXXX

a. to allocate any XXXXXXXXXX (a portion or all of the total allowable harvest) for those living on XXXXXXXXXX among the members of the Corporation;
b. to manage, in a manner consistent with legislation and the policies of the XXXXXXXXXX , the local exercise of participants harvesting rights including the methods, season and location of harvest;
c. to establish or amend group trapping areas in the settlement area, subject to the approval of the XXXXXXXXXX ;
d. to exercise the powers given to XXXXXXXXXX under the XXXXXXXXXX and
e. to advise the XXXXXXXXXX with respect to harvesting by the participants and other matters of local concern within the jurisdiction of the XXXXXXXXXX .

44. The Corporation is the sole member of the XXXXXXXXXX council members. The XXXXXXXXXX is elected at the XXXXXXXXXX annual meeting of members and each council member serves a two year term.

45. XXXXXXXXXX

46. XXXXXXXXXX

By agreement between the Government of Canada and the XXXXXXXXXX at the time the XXXXXXXXXX

47. XXXXXXXXXX

48. The Corporation, XXXXXXXXXX

49. The terms of the XXXXXXXXXX provide that each land corporation XXXXXXXXXX

PROPOSED TRANSACTIONS:

XXXXXXXXXX

50. The Corporation proposes to enter into XXXXXXXXXX (the "Agreement") XXXXXXXXXX

51. XXXXXXXXXX

52. XXXXXXXXXX

53. XXXXXXXXXX

54. XXXXXXXXXX

55. XXXXXXXXXX

56. XXXXXXXXXX

57. XXXXXXXXXX

58. XXXXXXXXXX

59. XXXXXXXXXX

60. XXXXXXXXXX

61. XXXXXXXXXX

62. XXXXXXXXXX

63. XXXXXXXXXX

64. XXXXXXXXXX

65. XXXXXXXXXX

66. XXXXXXXXXX

67. XXXXXXXXXX

68. XXXXXXXXXX

69. XXXXXXXXXX

70. XXXXXXXXXX

71. XXXXXXXXXX

72. XXXXXXXXXX

73. XXXXXXXXXX

74. XXXXXXXXXX

75. XXXXXXXXXX

76. XXXXXXXXXX

77. XXXXXXXXXX

78. XXXXXXXXXX

79. XXXXXXXXXX

80. XXXXXXXXXX

81. XXXXXXXXXX

82. XXXXXXXXXX

83. XXXXXXXXXX

84. XXXXXXXXXX

85. XXXXXXXXXX

86. XXXXXXXXXX

87. XXXXXXXXXX

XXXXXXXXXX

88. XXXXXXXXXX

89. XXXXXXXXXX

90. XXXXXXXXXX

91. XXXXXXXXXX

92. XXXXXXXXXX

93. XXXXXXXXXX

94. XXXXXXXXXX

95. XXXXXXXXXX

96. XXXXXXXXXX

97. XXXXXXXXXX

98. XXXXXXXXXX

99. XXXXXXXXXX

100. XXXXXXXXXX

101. XXXXXXXXXX

102. XXXXXXXXXX

103. XXXXXXXXXX

104. XXXXXXXXXX

105. XXXXXXXXXX

PURPOSE OF PROPOSED TRANSACTIONS:

The purpose of the proposed transactions is to exercise the rights given to the Corporation XXXXXXXXXX to receive royalty and other payments arising from the exploration and development of the natural resources in and around the XXXXXXXXXX and from other economic development in this area.

RULINGS:

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, the proposed transactions and the purpose of the proposed transactions, we rule as follows:

Because the Corporation is considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act while it is negotiating and implementing a self-government agreement XXXXXXXXXX , and is therefore exempt from tax under Part I of the Act, no tax will be payable under Part I of the Act by the Corporation with respect to the amounts described in 74-76, 79, 86, 96, 115 and 116 above.

The above advance income tax ruling, which is based on the Act and Regulations in their present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002, and is binding on the Canada Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX .

NOTE:

This letter is based solely on the facts and proposed transactions described above. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

In particular, nothing in this letter should be construed as implying that we have reviewed XXXXXXXXXX Nothing in this letter should be construed as confirmation that this agreement does or does not create a trust among the parties. Nor should any part of this letter imply that any income paid to the XXXXXXXXXX by the parties to this agreement is the income of the parties, or is income to the XXXXXXXXXX or any trust that may be created as a result of this agreement.

Finally, we have not considered or confirmed whether any interest that may be received by the Corporation pursuant to 79 herein is "reasonable" for purposes of the Act.

Yours truly,

XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch