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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1.Is a corporation operated on a reserve by Indians exempt from taxation by virtue of section 87 of the Indian Act?
2.Does Otineka apply?
Position TAKEN:
1.No.
2.Insufficient information provided by the T/P, therefore we provided general comments.
Reasons FOR POSITION TAKEN:
1.Since a corporation is not an "Indian" or "band", as defined in the Indian Act, it does not qualify for the exemption provided in section 87 of the Indian Act.
2.While the Indian Act provides that Indian band councils may enact laws in certain areas which are typically within the jurisdiction of municipal governments, this similarity falls short of leading to the conclusion that Indian band councils are municipalities. As the decision rendered in the Otineka case hinged upon the particular facts of the case, only corporations that can demonstrate that they are in exactly the same position as those in Otineka will be exempt under paragraph 149(1)(d).
5-952651
XXXXXXXXXX M. Azzi
May 6, 1996
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
This is in reply to your enquiry of September 13, 1995, which has been forwarded to us for reply by the XXXXXXXXXX Tax Services Office. You have requested our views as to whether XXXXXXXXXX is exempt from income tax. You have indicated that XXXXXXXXXX is a forestry corporation operated on a reserve by Indians and you referred to the decision relating to The Pas Indian Band in Otineka Development Corporation Limited et al. v. The Queen, 94 DTC 1234.
We apologize for the delay in responding to your request.
You have not provided sufficient information in order to determine whether XXXXXXXXXX is exempt from taxation. However, we can offer the following general comments which are not binding on the Department.
Paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act provide a tax exemption for the personal property of an Indian or band situated on a reserve. Since a corporation is not an "Indian" or "band", as defined in the Indian Act, it does not qualify for this exemption. Therefore, a corporation will be taxable on its income unless otherwise exempt from taxation under another provision of the Act.
For instance, by virtue of paragraph 149(1)(d) of the Act, a corporation may qualify for exemption from Part I tax where at least 90% of the shares of the corporation is owned by Her Majesty in right of Canada or a province or by a Canadian municipality. Consequently, in order for a corporation whose shares are owned by an Indian band to qualify under paragraph 149(1)(d) of the Act, the band must be considered a Canadian municipality.
In our view, while the Indian Act provides that Indian band councils may enact laws in certain areas which are typically within the jurisdiction of municipal governments, this similarity falls short of leading to the conclusion that Indian band councils are municipalities.
In the Otineka case, the Tax Court of Canada concluded that, since there is no definition of a "Canadian municipality" in the Act, the term must be given its ordinary meaning and is not to be solely determined by the provincial legislation governing municipalities. In the Court's view, the powers conferred under the Indian Act and their exercise by The Pas Indian Band created a form of self-government that is an essential attribute of a municipality. In that case, the band had passed by-laws to regulate water and sewers, garbage disposal, weed control, domestic animal control, law and order, the provision of housing and other by-laws. It also provided services to band members in areas such as education, health care, social services, employment and training services, counselling and economic development. In the end, the Court concluded that the band was a municipality for the purposes of paragraph 149(1)(d) of the Act and, therefore, that corporations owned by the band were exempt from taxation as municipally-owned corporations.
As the decision rendered in the Otineka case hinged upon the particular facts of the case, only corporations that can demonstrate that they are in exactly the same position as those in Otineka will be exempt under paragraph 149(1)(d) of the Act.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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