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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 187824r
Dear [Client]:
Subject: GST/HST INTERPRETATION
Public Service Bodies’ Rebate
Thank you for your fax of [mm/dd/yyyy], concerning our ruling in a November 6, 2019, letter in which we stated that your client, […] (the Band), was not entitled to a public service bodies’ rebate in respect of salary and honoraria paid to the elected officers of the Band. You have requested that we reconsider our ruling in light of an article you have cited in your submission and you have requested clarification on the application of P-097R2, Expense Allowances of Elected Municipal Officers and School Board Members. We have carefully considered your submission in our review.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, 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 to the Excise Tax Act (ETA) unless otherwise specified.
Your submission included an article entitled “Indian Bands as Municipalities” written by Arthur Drache, C.M., Q.C. We will provide our comments on this article as it relates to our November 6, 2019, ruling letter.
We will also provide our comments on this excerpt from your submission.
“On the Rulings, you defined Honorarium as a fee for service. The calculation presented for PSB rebate is only one third of the Honorarium which according to GST/HST policy statement P-097R2 is considered allowance if it does not exceed one half of the amount paid to the recipient as salary or remuneration.”
STATEMENT OF FACTS
We understand from your original request for a ruling, the following set of facts. In your submission you have not disputed these facts or provided us with any new facts to consider.
1. The Band is a “band” as defined in subsection 2(1) of the Indian Act.
2. The Band has a “reserve” as defined in subsection 2(1) of the Indian Act.
3. The Band is governed by a chief and a [#]person council. The chief and council are elected democratically under band custom pursuant to Section 11 of the Indian Act.
4. You have provided us with a printout of the Schedule of Remuneration and Expenses for chiefs and councillors for the Band for the year ended [mm/dd/yyyy]. The schedule contains the following information:
[…]
5. You have explained the Band’s entitlement to the public service bodies’ rebate in the following manner:
“Calculation of claimable Public Service Bodies Rebate as Municipality per Guideline on P-097R2, Expense Allowances of Elected Municipal Officers and School Board Members and RC4034, GST/HST Public Service Bodies Rebate.
[…]”
[…]
6. The Band was determined to be a municipality pursuant to paragraph (b) of the definition of “municipality” in subsection 123(1) of the ETA effective [mm/dd/yyyy].
7. The Band is not governed by a municipal Act of a province that deems a proportion of the total amount paid to the chief or a councillor in respect of their position as an elected member of the Band council to be an allowance for expenses.
8. The Band has not entered into a Self-Government Agreement.
RULING REQUESTED
You would like us to confirm the Band is entitled to claim a public service bodies’ rebate in respect of salary and honoraria paid to the chief and councillors of the Band in a manner consistent with the calculation you have provided in Fact # 5.
RULING GIVEN
Based on the facts set out above, we confirm the ruling from our letter of November 6, 2019, that is, the Band is not entitled to claim a public service bodies’ rebate in respect of salary and honoraria paid to the chief and councillors of the Band in a manner consistent with the calculation you have provided in Fact # 5.
INTERPRETATION REQUESTED
You would like us to clarify our November 6, 2019, ruling letter by taking into account the following two questions from your submission.
1. Can the article entitled “Indian Bands as Municipalities” written by Arthur Drache, C.M., Q.C., be invoked on this issue?
2. Does policy statement P-097R2 consider one third of the honorarium paid to an officer of the Band to be an allowance if it does not exceed one half of the amount paid to the recipient as salary or remuneration?
INTERPRETATION GIVEN
Based on the information provided, we have the following comments to clarify our November 6, 2019, ruling letter:
1. The article entitled “Indian Bands as Municipalities” written by Arthur Drache, C.M., Q.C., focuses on an interpretation issued by the Income Tax Rulings Directorate of the Canada Revenue Agency (CRA). That interpretation letter, document number: 2016-0645031I7, reviewed the CRA’s interpretation of paragraph 149(1)(c) of the Income Tax Act as it relates to Indian Bands created under the Indian Act. The following excerpt from that interpretation, which is emphasized in Mr. Drache’s article, summarizes the findings.
“As a result, it is our view that all bands created under the Indian Act meet the criteria to be considered municipal or public bodies performing a function of government in Canada for the purpose of paragraph 149(1)(c) of the Act [Income Tax Act] and are therefore exempt from income tax.”
The relevant wording of subsection 149(1)(c) of the Income Tax Act in this context is; “No tax is payable under this Part on the taxable income of a person for a period when that person was, […] a municipality in Canada, or a municipal or public body performing a function of government in Canada. […]”
The interpretation issued by the Income Tax Rulings Directorate explains that an Indian band created under the Indian Act is considered to be an entity referenced in the second part of paragraph 149(1)(c), that is, a municipal or public body performing a function of government in Canada. The interpretation does not state that an Indian band that is exempt from income tax is a municipality in Canada.
For purposes of the GST/HST, municipality means an incorporated city, town, village, metropolitan authority, township, district, county or rural municipality or other incorporated municipal body however designated, and such other local authority that the Minister of National Revenue may determine to be a municipality. This definition does not capture an Indian band created under the Indian Act unless the Indian band was determined to be a municipality pursuant to paragraph (b) of the definition of “municipality” in subsection 123(1) of the ETA. As noted in fact #6, from our November 6, 2019 ruling letter, the Band was determined to be a municipality effective [mm/dd/yyyy], and is therefore eligible for the public service bodies’ rebate as a municipality. For this reason, the interpretation issued by the Income Tax Rulings Directorate has no bearing on the Band’s eligibility for the rebate.
2. No, policy statement P-097R2 does not consider one third of the honoraria paid to an officer of the Band to be an allowance. To clarify, P-097R2:
- Explains the application of section 174 to allowances that fell under former subsection 81(3) of the Income Tax Act.
- Does not deem that a proportion of the total remuneration paid to an employee, or elected officer, is an allowance for expenses.
- Does not expand a municipality’s public service bodies’ rebate entitlement beyond that provided in section 174 and the basic rules of the public service bodies’ rebate found in section 259.
The key concept in the application of this policy statement is that an allowance has to be paid, or be deemed to be paid, to an elected municipal officer or a school board member.
P-097R2 is currently under review by the CRA as a result of subsection 81(3) of the Income Tax Act being repealed effective January 1, 2019.
Allowances paid
For purposes of section 174, the term “allowance” is interpreted to have the same meaning it has for income tax purposes. Therefore, an amount constitutes an allowance for the purposes of section 174 where the amount meets all of the following criteria:
- the amount is predetermined,
- the amount is paid for a certain purpose;
- the amount paid is at the complete disposition of the person receiving it; and
- the person receiving the amount is not required to account for its use.
If an Indian band that has been determined to be a municipality for GST/HST purposes pays an allowance to an elected officer of the Indian band, section 174 could apply to enable the Indian band to claim a public service bodies’ rebate in respect of the allowance paid.
In this case, the amounts paid by the Band to chiefs and councillors and referred to as honoraria in fact #5 of our November 6, 2019 ruling letter are salary (generally defined as the agreed compensation for services) and honoraria (generally defined as a fee for services) and are not an allowance paid by the Band to the chief and councillors of the Band.
Allowances deemed to be paid
The legislation governing municipalities (Municipal Acts) of some provinces deem that a proportion of the total amount paid to an elected officer of a municipal council (salary, fees, indemnities and honoraria; a general expense allowance, a mileage or other travelling allowance) is an allowance for expenses. Where this is so, it is the CRA’s policy that the proportion so deemed to be an expense allowance will be accepted as an expense allowance.
Therefore, if an Indian band were governed by a Municipal Act of a province that deems a proportion of the total amount paid to the chief or a councillor in respect of their position as an elected officer of the band council to be an allowance for expenses, section 174 could apply to enable the Indian band to claim a public service bodies’ rebate in respect of the allowance deemed paid.
However, in this case, the Band is not governed by such a Municipal Act. Therefore, a proportion of the total amount paid to the chief or a councillor in respect of their position as an elected officer of the band council, (that is, salary and honoraria), is not deemed to be an allowance for expenses.
No allowance paid or deemed to be paid
Where an Indian band is not governed by a Municipal Act of a province that deems a proportion of the total amount paid to an elected officer to be an allowance for expenses, and where no allowance is actually paid, P-097R2 has no application and section 174 could not apply to enable the Indian band to claim a public service bodies’ rebate in respect of the amounts paid. Simply put, if there is no allowance paid or deemed to be paid, the conditions of section 174 cannot be met.
The amounts in question, referred to as honoraria in fact #5 of our November 6, 2019 ruling letter, are not an allowance paid nor are they an allowance deemed to be paid. Therefore, the Band is not entitled to claim a public service bodies’ rebate in respect of those amounts paid to the chief and councillors of the Band.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call Trent MacDonald directly at 613-670-7941. 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,
Heather Reardon
Manager
Charities and Non-profit Organization Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 The number of months during the fiscal year that the individual was a chief or councillor.
2 As per the First Nations Financial Transparency Act:
“remuneration” means any salaries, wages, commissions, bonuses, fees, honoraria and dividends and any other monetary benefits – other than the reimbursement of expenses – and non-monetary benefits.
3 As per the First Nations Financial Transparency Act:
“expenses” includes the costs of transportation, accommodation, meals, hospitality and incidental expenses.
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