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.Do all Indian bands qualify as municipalities for purposes of paragraph 149(1)(d) of the Income Tax Act?
2.Can a corporation owned by an Indian band qualify under paragraph 149(1)(d) of the Income Tax Act regardless of the type of business it carries on?
3.Is the meaning of "municipality" as used for GST purposes applicable to the Income Tax Act?
4.Can a corporation that is owned by an Indian band qualify under 149(1)(d) even though it conducts its business off reserve, provided that it maintains its head office on reserve?
5.In light of Otineka, does a corporation have to be 100% owned by an Indian band in order to qualify under paragraph 149(1)(d)?
Position:
1.No.
2.Yes.
3.No.
4.No.
5.No.
Reasons:
1.Our long-standing position has been that a band that has passed bylaws under both sections 81 and 83 of the Indian Act (or, formerly, if they reached an advanced stage of development) would be considered to be a "public body performing a function of government in Canada" within the meaning of paragraph 149(1)(c) of the Income Tax Act. We did not view bands as being "Canadian municipalities" within the meaning of paragraph 149(1)(d). In the Otineka case, the Pas Indian Band, in addition to passing bylaws under both sections 81 and 83 as well as section 85.1 of the Indian Act, provided an extensive array of services customarily provided by a municipality. Only those bands that act similarly to the Pas Indian Band would be considered to be a municipality for purposes of paragraph 149(1)(d).
2.In the Otineka case, the two corporations carried on business that was atypical of business carried on by a municipality. They were commercial operations.
3.The Excise Tax Act has defined "municipality" for its own purposes. As was found in Otineka, that definition has no application to the Income Tax Act.
4.There are two significant facts that enabled the corporations in Otineka to qualify under paragraph 149(1)(d). First, the band was considered to be a municipality. Second, the corporations operated within the jurisdiction of the band. We do not feel it is appropriate to extend the decision in Otineka to apply to corporations in a different fact pattern.
5.Although we generally view Otineka to apply only to a specific fact pattern, it is noted that paragraph 149(1)(d) may apply even where the municipality owns only 90% of the shares of a corporation.
September 25, 1996
John Fennelly HEADQUARTERS
Program Management & J.D. Brooks
Operations Section 957-8953
Small & Medium Business
Enterprises Division
Audit Directorate
Attention: Luisa Guyan 962830
Corporations Owned by Indian Bands
This is in reply to your request of July 31, 1996 in which you requested our views on the taxability of incorporated entities owned by Indian bands. You noted the recent case of Otineka in which two corporations owned by an Indian band were found to qualify under paragraph 149(1)(d) of the Income Tax Act since they were owned by a "Canadian municipality" within the meaning of that paragraph.
The conclusion in the Otineka case, that the corporations owned by The Pas Indian Band qualified under paragraph 149(1)(d), was based on the facts of that particular case. Other corporations in the same fact pattern should receive similar treatment; however, the facts in the Otineka case may not exist in other cases. For instance, The Pas Indian Band had passed bylaws under both sections 81 and 83, as well as section 85.1, of the Indian Act and it provided an extensive array of services customarily provided by a municipality. Another very significant point is that the two corporations in question owned businesses that were situated and operated on reserve and thus operated within the jurisdiction of the band.
In the Otineka case, one corporation owned a shopping mall and the other owned a building centre. Both of these types of business are not typical of the type of business one would normally expect to be run by a municipality, and yet that fact did not impact on the conclusion. Thus, we would have to conclude that if a band-owned corporation operated a different business that was also atypical of business carried on by non-Indian municipalities, it could nevertheless qualify as a municipal corporation in the appropriate fact situation.
The definition of municipality in the Excise Tax Act applies for purposes of the Goods and Services Tax but is not relevant to the Income Tax Act. An entity can qualify under paragraph 149(1)(c) of the Income Tax Act if it is either a municipality in Canada or a municipal or public body performing a function of government in Canada. In order to be a public body performing a function of government in Canada, a band formerly had to have reached an advanced stage of development. However, due to modification of the Indian Act, that criterion is no longer relevant. Instead, a band now qualifies as such a public body if it has passed bylaws under both sections 81 and 83 of the Indian Act. The band in the Otineka case met this criterion, but the difference in the judgment from our former view was that the band was determined to be a municipality and not just a public body performing a function of government. Since, under paragraph 149(1)(c), a band could qualify for exemption as a public body performing a function of government even if it was not advanced sufficiently to be a municipality, the distinction is important only for purposes of paragraph 149(1)(d). We point out, though, that not all bands have passed sufficient bylaws and provide sufficient services to be operating as a municipality. Thus, in our view, the Otineka case will have limited application.
Our present position is that we will contemplate whether a band is a Canadian municipality only if there is a question as to whether a corporation owned by the band qualifies under paragraph 149(1)(d) of the Income Tax Act. There has been only one case to date in which we ruled that a particular band-owned corporation qualified under paragraph 149(1)(d) of the Income Tax Act.
In view of the requirements stated in paragraph 149(1)(d) of the Income Tax Act, a corporation that would otherwise qualify under this paragraph may qualify even though the band owns only 90% of the corporation's shares.
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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