Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 165738
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of the GST/HST to supplies of services made by an Indian band and a band-empowered entity to certain persons on a reserve
Thank you for your letter of October 17, 2014, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of services made by the […][the First Nation (FN)] and […][the FN Corporation] to certain persons on a reserve. We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario, and 15% in New Brunswick, and Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are made to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
You have requested an interpretation concerning the application of the GST/HST to supplies of services made by an Indian band or a band-empowered entity (BEE) under specific scenarios. The following facts concerning those scenarios are based on information contained in your original letter, information obtained from subsequent correspondence, a review of the websites of the […] (the First Nation), […] (the FN Corporation), and Indigenous and Northern Affairs Canada, and additional information found upon making a general search of the Internet.
1. The First Nation is an Indian band as defined in the Indian Act. It has the use and benefit of two reserves, […]. The First Nation is not registered for GST/HST purposes.
2. The First Nation owns […]% of the shares of the FN Corporation, which maintains a presence on a reserve, is governed by a board of directors, but does not have employees. The FN Corporation is registered for GST/HST purposes […]. The FN Corporation is engaged in various activities for the benefit of the First Nation’s members. Specifically, the FN Corporation […][direct quote from website outlining the activities being considered]
3. […](Limited Partnership A) is a limited partnership of which the First Nation holds a […][greater than 90]% interest. The undisclosed general partner to the partnership is a numbered company that is located on a reserve and has no employees. Limited Partnership A is not registered for GST/HST purposes.
4. […](Limited Partnership B) is a limited partnership of which Limited Partnership A holds a […][less than 50]% interest. The undisclosed general partner is a numbered company that is located on a reserve, but it is not the same general partner participating in Limited Partnership A. Limited Partnership B is registered for GST/HST purposes […], and […][direct quote from website outlining the activities provided].
INTERPRETATION REQUESTED
You would like to know whether the GST/HST applies to supplies by the First Nation of:
* management services under a management service agreement to the FN Corporation;
* payroll services to Limited Partnership B;
* administrative services, charged out on an hourly rate, to the FN Corporation, Limited Partnership A, and Limited Partnership B.
You would also like to know whether the GST/HST applies to supplies by the FN Corporation of:
* management services to Limited Partnership A and Limited Partnership B.
INTERPRETATION GIVEN
The supplies of services by the First Nation
Supplies made by any supplier of management services, payroll services, and administrative services (we refer to these all below as administrative services) are generally subject to the GST/HST. The application of the tax to supplies made by the First Nation to any recipient depends upon a number of factors.
The First Nation’s supplies of administrative services made to Indians, bands or band-empowered entities may be relieved of the GST/HST where the conditions described in the CRA’s policy, Technical Information Bulletin B-039, GST/HST Administration Policy - Application of the GST/HST to Indians (B-039), are met. We refer to this document throughout this letter. B-039 may be accessed on the CRA’s website at
http://www.cra-arc.gc.ca/E/pub/gm/b-039/b-039-e.pdf.
Nevertheless, even if the administrative services are relieved of the tax due to B-039, the supplies of these services are taxable supplies for determining the requirement to register for GST/HST purposes. In general, every person (e.g., the First Nation) who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to register pursuant to subsection 240(1), except where the person is a small supplier.
A “commercial activity” of a person, as defined in subsection 123(1), includes a business carried on by the person, or an adventure or concern of the person in the nature of trade, except to the extent it involves the making of exempt supplies by the person. It also includes making a supply (other than an exempt supply) of real property, including anything done by the person in the course of or in connection with the making of the supply.
In general, subsection 148(1) provides that a person is a small supplier during any particular calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies including zero-rated supplies (other than supplies of financial services, sales of capital property, and goodwill attributable to the sale of a business) made by the person or an associate of the person at the beginning of the particular calendar quarter, that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000, or where the person is a public service body, $50,000.
We note here that the FN Corporation and the Limited Partnership A appear to be associates of the First Nation under subsection 127(2) for the FN Corporation and paragraph 127(3)(a) for the Limited Partnership A:
(2) (Associated persons) — A person other than a corporation is associated with a particular corporation for the purposes of this Part if the particular corporation is controlled by the person or by a group of persons of which the person is a member and each of whom is associated with each of the others.
(3) (Associated persons) — For the purposes of this Part, a person is associated with
(a) a partnership if the total of the shares of the profits of the partnership to which the person and all other persons who are associated with the person are entitled is more than half of the total profits of the partnership, or would be more than half of the total profits of the partnership if it had profits.
If they are associated, the First Nation needs to calculate whether or not it exceeds the small supplier threshold while taking into consideration worldwide sales by both the FN Corporation and Limited Partnership A.
Additionally, a person ceases to be a small supplier at any time in a calendar quarter if the total value of the consideration that becomes due, or is paid without becoming due, in that quarter for world-wide taxable supplies (with the same exceptions made in the paragraph above) made by the person or an associate of the person at the beginning of the calendar quarter, exceeds $30,000, or where the person is a public service body, $50,000. The person ceases to be a small supplier immediately before the consideration becomes due or is paid for the particular taxable supply that puts the person over the $30,000, or $50,000 small supplier threshold.
In the case of a person who is required to be registered under subsection 240(1), the person is considered a “registrant” under the ETA whether or not the person actually registers. Therefore, in the case of mandatory registration, the person’s effective date of registration will correspond to the date from which the person became a “registrant” under the ETA. The person’s effective date of registration will be the day that the person first makes a taxable supply in Canada otherwise than as a small supplier. As a registrant at that time, the person is subject to the requirements and entitlements under the ETA.
For purposes of the ETA, the First Nation may be a non-profit organization (NPO), which is a public service body eligible for the $50,000 small supplier threshold. An NPO is defined in subsection 123(1), to mean “a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada”.
We do not generally provide rulings on whether a person meets the definition of an NPO as we are unable to determine whether the person is in fact operated solely for a purpose other than profit on an on-going basis. To assist the First Nation in determining whether it meets the definition of an NPO, we refer you to GST/HST Policy Statement P-215, Determination of whether an entity is a Non-Profit Organization for purposes of the Excise Tax Act, which can be found on the CRA’s website: http://www.cra-arc.gc.ca/menu/GTPP_200-e.html.
Most supplies of property and services made by an NPO are taxable and, if the NPO is a GST/HST registrant, it would be required to charge, collect, and remit the GST/HST on its taxable supplies. In addition, the NPO may claim input tax credits (ITCs) to recover the GST/HST paid or payable on inputs acquired, imported or brought into a participating province for consumption, use or supply in its commercial activities, assuming it meets the legislative requirements for doing so.
Where the First Nation meets the definition of an NPO, there may be provisions within Part VI of Schedule V to the ETA that would apply to exempt certain supplies made by the First Nation. Where supplies of property or services are exempt when made by an NPO, ITCs are not generally available for inputs acquired, imported or brought into a participating province for consumption, use or supply in its exempt supplies.
If the First Nation is not an NPO or any other type of public service body, the supplies of property and services will generally be taxable.
We note that a person who is a small supplier engaged in commercial activities may find it beneficial to register for GST/HST purposes, and it may voluntarily do so, pursuant to subsection 240(3). However, if the First Nation is not required to be registered, and does not voluntarily register, it will be a small supplier for purposes of the GST/HST and it does not generally have to charge, collect, and remit the tax on taxable supplies of property or services that it makes in the course of its commercial activities. However, there are some exceptions for real property whereby a non-registrant may make a taxable supply of real property and be required to collect GST/HST.
We turn now to the tax relief described in B-039. As the FN Corporation is situated on a reserve and the First Nation owns […]% of its shares, the FN Corporation qualifies as a band-empowered entity (BEE) under the definition of a BEE contained in B-039. An incorporated BEE may acquire taxable services on or off a reserve relieved of the GST/HST where those services are acquired for band management activities (BMA) or real property on a reserve. BMA is defined in B-039 as:
activities or programs undertaken by a band or (BEE) that are not commercial activities for which they would otherwise be entitled to claim (ITCs). In determining whether the acquisition of a supply is for band management, the output of the activity or program will be the determining factor, as opposed to the objectives of the activity or program. For example, a band's objective may be to provide employment and training to band members. To achieve this objective, the band may form a commercial enterprise which will provide on-the-job training and also create employment. Although the band’s objective is to train persons, the output is a commercial activity for which there is an entitlement to (ITCs). As a result, supplies acquired for use in this band program are not considered to have been acquired for use in (BMA) unless the band is not required to be registered and thus not eligible for (ITCs) (i.e., a small supplier).
However, the FN Corporation is a GST/HST registrant which generally means it is engaged in commercial activities. The FN Corporation seeks business opportunities in such sectors as […], all of which are commercial activities. As a GST/HST registrant, the FN Corporation is entitled to claim ITCs to recover all or some of the GST/HST it expends on inputs to its commercial activities, assuming it meets the legislative requirements for doing so.
Consequently, if the First Nation is required to be registered, or has voluntarily registered, it must charge, collect, and remit the GST/HST with respect to supplies of administrative services to the FN Corporation if the FN Corporation acquires those service in respect of its commercial activities.
To apply B-039 tax relief to Limited Partnership A and Limited Partnership B, we must refer to the CRA’s policy in B-039 concerning partnerships. The following two paragraphs contained in B-039 provide that policy:
Sole proprietorships and partnerships owned by Indians receive the same treatment on purchases as Indians. If they are registered for the GST/HST, they, like all other businesses, must collect the GST/HST on their sales of taxable property and services (unless they are made to Indians, Indian bands or (BEEs) under the conditions in which the GST/HST is not payable) and they can recover any GST/HST paid on their eligible off-reserve business purchases by claiming (ITCs).
In the case of purchases made by partnerships, tax relief is available for purchases made in either the Indian purchaser’s own name or the partnership name. Where a partnership has both Indian and non-Indian participants, relief from the GST/HST will apply fully to the partnership. Partnerships with partners that are Indian bands or (BEEs) are also afforded tax relief on purchases when acquired in either the name of the Indian band or the (BEE) or the partnership name. However, all conditions for the Indian or Indian band partner to receive tax relief on the acquisition must be met, [e.g., property must be acquired on a reserve or delivered to a reserve and the proper documentation must be maintained].
As indicated in the most recent financial statements of the First Nation available on its website (fiscal year ended [mm/dd/yyyy]), the First Nation holds a [greater than 90]% interest in Limited Partnership A. As the First Nation partner in this partnership is an Indian band, the tax relief applied to Limited Partnership A is the tax relief available to an Indian band as described in B-039, as long as the First Nation continues to be a partner.
B-039 states that in order for the tax relief to apply in the case of services acquired on or off reserve by an Indian band, the acquisition must be made for BMA or for real property on a reserve (exception: purchases of transportation, short-term accommodation, meals and entertainment for which a rebate may be available). As a result, if the supply of the administrative services is acquired by Limited Partnership A for BMA or real property on a reserve the supply would be eligible for relief of the GST/HST. In such a case, Limited Partnership A must provide a certificate to the First Nation indicating the services are acquired by a band for BMA or real property on a reserve. Please read more about the certification at the bottom of this page.
Please note that if the First Nation is required to register for GST/HST purposes, Limited Partnership A would be required to register as well due to its association with the First Nation. Pursuant to paragraph 127(3)(a), Limited Partnership A is an associate of the First Nation if the First Nation is entitled to more than half of the total profits of the partnership, or would be entitled to more than half of the total profits of the partnership if it had profits. As a result, if Limited Partnership A is a registrant and is engaged in commercial activities, the administrative services acquired by Limited Partnership A would not be made for BMA, and cannot be acquired relieved of the tax. Limited Partnership A if registered may be entitled to claim ITCs.
Limited Partnership B’s partners are Limited Partnership A and the other unnamed partner. The First Nation’s eligibility to be relieved of the tax cannot flow through Limited Partnership A to Limited Partnership B, because for ETA purposes a partnership is a “person” and as such Limited Partnership A is a separate and distinct entity from the First Nation.
Accordingly, the services provided to Limited Partnership B by the First Nation are not relieved of the GST/HST. As Limited Partnership B is registered for the GST/HST, and is engaged in commercial activities, such as […], it may claim ITCs in respect of the GST/HST it incurs, assuming it meets the legislative requirements for doing so.
When B-039 applies to relieve tax on a supply, a certificate must be provided to, and retained by, the supplier. In the case of Limited Partnership A, the certificate may be made out in the partnership name or in name of the Indian band. In the case of the acquisition of a service such as an administrative service, the certificate should state that “the service is being acquired for band management activities or for real property on a reserve.” Where the service is, or the services are, acquired on an ongoing basis over a period of time a single “blanket” certificate may be issued on which the period of time is specified. An example of the appropriate certification is provided in B-039 under the heading Documentary evidence to be retained by vendors.
The supplies of services by the FN Corporation
As a GST/HST registrant, the FN Corporation is required to charge, collect, and remit the tax on any supply made of the administrative service to Limited Partnership A unless the service is acquired by Limited Partnership A for BMA or real property on a reserve. Limited Partnership A is required to provide a certificate to the FN Corporation indicating such, as described above.
The FN Corporation is required to charge, collect, and remit the GST/HST on the supplies made of administrative services to Limited Partnership B.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-1175. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Dwight Kostjuk
Aboriginal Affairs and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
Email this Content