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 XXXXXXXXXX exempt from taxes? If so, which years are exempt?
2.Does 149(10) apply? If so, when?
PositionS and RATIONALE:
1.It appears that it would not be exempt, since the Indian Band has not, to our knowledge, passed any bylaws under section 83 of the Indian Act. Thus, the Band would not be considered to be operating as a municipality.
However, if it has passed section 83 bylaws and is providing services typical of the services provided by municipalities, it will become exempt no sooner than at the start of the taxation year that includes January 28, 1994, being the time of the decision in Otineka, since prior to that time the corporation was considered to be taxable. We do not generally apply case law retroactively if the time for filing a Notice of Objection with respect thereto has expired.
2.Paragraph 149(10) applies upon a change in a corporation's tax status. The corporation previously filed for several years as being taxable. If it now meets the requirements of 149(1)(d), it will have a change in status from taxable to exempt no sooner than the first day of the first taxation year that is eligible for the corporation to request assessment or reassessment.
November 18, 1996
John Fennelly HEADQUARTERS
Program Management & J.D. Brooks
Operations Section Small & Medium Business Enterprises Division
957-2103
Audit Directorate
Headquarters
960406
XXXXXXXXXX
This is in reply to your request of January 22, 1996 in which you requested our views on the application of paragraph 149(1)(d) and subsection 149(10) of the Income Tax Act (the "Act") to XXXXXXXXXX (the "Taxpayer").
Facts
XXXXXXXXXX
7.The Taxpayer is requesting that the 1994 return be reassessed as exempt from tax pursuant to paragraph 149(1)(d) of the Act. The 1995 return of the Taxpayer was filed as exempt.
8.The Band has passed bylaws under section 81 and 85.1 of the Indian Act and claims to provide services to Band members in various areas including education, health, social services, employment and training, alcohol and drug abuse and economic development.
Representative's Views
The representative for the Taxpayer is of the view that the 1994 decision of the Tax Court of Canada in the case of Otineka (94 DTC 1234) has application to the Taxpayer, such that the Taxpayer should be considered exempt by virtue of paragraph 149(1)(d) of the Act. He continues to seek reassessment of the 1994 return as exempt and he feels that all subsequent returns should be treated as exempt. There has been no representation received concerning subsection 149(10) of the Act.
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.
Prior to Otineka, it was our view that in order to be considered to be exempt under paragraph 149(1)(c) of the Act, an Indian band would have to have passed bylaws under both sections 81 and 83 of the Indian Act. Having done so, it would be considered to be "a public body performing a function of government in Canada" and thereby qualify under 149(1)(c). This view has not been overturned by Otineka since the Pas Band had not only passed such bylaws but it provided considerable services to the band members. Thus, it went a step further than being a public body performing a function of government.
There has been no mention of the XXXXXXXXXX Indian Band having passed a bylaw under section 83 of the Indian Act. If the Band has not passed a bylaw under section 83, we would have to conclude that the Band is not functioning as a municipality.
However, if the Band has passed such a bylaw, one would have to consider the extent of services provided by the Band to its members. In describing the services provided by the Band, the representative has used language that is very similar to that found in the Otineka case. If the descriptions are accurate, the Band would be considered to be a municipality and the Taxpayer would be exempt from Part I tax by virtue of paragraph 149(1)(d) of the Act provided that no person other than Her Majesty in right of Canada or a province or a Canadian municipality had a right to or to acquire 10% or more of the shares of either Parentco or the Taxpayer.
If paragraph 149(1)(d) applies, one must consider the timing of the application of subsection 149(10) of the Act. It is our view in the present fact situation that the Taxpayer would have become non-taxable no sooner than at the start of the taxation year that includes January 28, 1994, being the time of the decision in Otineka, since prior to that time the Taxpayer was considered to be taxable. In our view, if the 1994 T2 return is not under objection or appeal, the taxpayer would be constrained by the status claimed on filing, and the time of the change in status would therefore occur on the first day of the 1995 fiscal year.
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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