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: 132562
Dear [Client]:
Subject: GST/HST INTERPRETATION
A Supply of Real Property Made by Way of Lease on a Reserve pursuant to provisions of the Indian Act
Thank you for your letter received by our office on [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a supply of real property made by way of lease on a reserve pursuant to provisions of the Indian Act.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references made refer to the Excise Tax Act (the "ETA") unless otherwise specified. As the general scenario described below may include the application of the First Nations Goods and Services Tax ("FNGST"), we note that the First Nations Goods and Services Tax Act provides that Part IX of the ETA applies in respect of administering a First Nation's FNGST. As a result all references to the ETA also apply to a First Nation's FNGST.
Background
The general scenario you have described in your submission is as follows.
A particular First Nation has reserve lands. In [yyyy], a band resolution surrendered a portion of the reserve lands pursuant to section 39 of the Indian Act. [...]. Her Majesty the Queen in Right of Canada ("Canada") entered into a lease of the surrendered land with a third party engaged in commercial activity on [mm/dd/yyyy], under the authority of section 58 of the Indian Act. The lease is a taxable supply of an interest in real property, as no exemptions apply.
You state that, in [mm/yyyy], the First Nation assumed management control of the land under the provisions of sections 53 and 60 of the Indian Act, under which a First Nation is given the ability to assume many of Canada's administrative responsibilities of supplying specific interests in reserve land to third parties. The First Nation currently collects and remits tax on this supply.
[...]
[...], we are providing a general interpretation on the topic for which you requested a ruling.
INTERPRETATIONS REQUESTED
You would like to know if:
1. a First Nation's surrender of lands to Canada and the proceeds received from Canada by the First Nation related to the surrendered lands is similar to a long-term rental and is exempt from [...][GST/HST];
2. the First Nation is responsible for any GST/HST implications of Canada's lease of the surrendered lands to the third party for the period before the First Nation assumed management control in [mm/yyyy]; and
3. at the time the First Nation assumed management control of the land under sections 53 and 60 of the Indian Act, and leases land under an agreement for long-term use and possession of lands to the original tenant, the supply would be exempt by virtue of section 25, Part VI, Schedule V because the First Nation is a non-profit organization.
INTERPRETATIONS GIVEN
We have responded to the three submitted questions based on your submission's statement of facts in which the particular First Nation has operated under the Indian Act at all times. We have since learned that the particular First Nation began operating under the First Nations Land Management Act as of [mm/yyyy]. As a result, we have also provided an interpretation of the application of the GST/HST/FNGST to First Nations signatories of that Act.
Based on the information contained in your submission, we give the following interpretations.
1. Integral to Canada's fiduciary duty to its First Nations is the concept that, although title of reserve lands is vested in Canada, reserve lands are set aside for the use and benefit of the First Nations who have possession of them.
In a Supreme Court of Canada decision on aboriginal rights, Guerin v. The Queen [1984] 2 S.C.R. 335, the Court issued the statement that the government has a fiduciary duty towards the First Nations of Canada with respect to reserves:
Section 18(1) of the Indian Act confers upon [Canada] a broad discretion in dealing with the surrendered land. In the present case, the document of surrender confirms this discretion in the clause conveying the land to [Canada]. When, as here, an Indian Band surrenders its interest to [Canada], a fiduciary obligation takes hold to regulate the manner in which [Canada] exercises its discretion in dealing with the land on the Indians' behalf.
In the scheme for land use under the Indian Act the First Nation surrenders certain rights back to Canada to allow Canada as legal title-holder to enter into leases with third parties on Indian reserves.
Given Canada's fiduciary duty and the scheme for making supplies of reserve lands under the Indian Act, any monies received for such supplies flow back to the First Nation without any tax consequences.
2. Where Canada makes the supplies of real property to third-party lessees, the lessee generally pays its lease payments including GST/HST directly to Canada through Aboriginal Affairs and Northern Development Canada ("AANDC"). If such was the case in the particular First Nation's situation [...] [before the First Nation assumed management control] , the First Nation is not responsible for collecting or remitting the GST/HST/FNGST payable by the third party during this period.
3. The CRA's position is that where there is a supply of the long-term use and possession of reserve lands to a third party pursuant to the provisions of the Indian Act, the supply is made by Canada. While the First Nation may assume more control with regard to the leases, CRA's position is that Canada is responsible for reporting and remitting all taxes. As Canada - a government for the purposes of the ETA - is the supplier, the supply is a taxable supply as none of the exemptions found in Schedule V to the ETA, including section 25 of Part VI, apply.
Where the First Nation collects the rent that includes an amount on or account of the GST/HST/FNGST, it would also be liable for the tax as a result of the operation of section 222 which deems the amount to be held in trust for Canada.
The above information does not apply to a First Nation signatory operating under its own land code pursuant to the First Nation Land Management Act, a discussion of which follows below.
First Nations Land Management Act (FNLMA)
[...], it was determined [...] that the particular First Nation concerned in your ruling submission entered into an Individual Agreement on First Nation Land Management (IA-FNLM) with Canada in [...][the same month as they assumed management control]. Therefore the [...] First Nation's supplies of reserve lands are governed by the FNLMA rather than the Indian Act.
This conclusion is based on the fact that section 3.1 of the IA-FNLM transferred all rights, obligations and powers under the leases from Canada to the First Nation. As well, section 3.2 of the IA-FNLM provides that the First Nation is responsible for the collection of all rents and other amounts owing, payable or accruing pursuant to any instrument granting an interest in the First Nation lands. The CRA takes the position that as of the effective date of the IA-FNLM, the supplier changed. As holders of all the rights, obligations and powers under the leases, the person making the supply of the real property by way of lease is now the First Nation. In other words, the First Nation is the supplier by virtue of subsection 123(1), which defines a "supplier" as "in respect of a supply, to be the person making the supply."
Pursuant to subsection 221(1), the supplier is normally responsible for the collection of the GST/HST/FNGST on taxable supplies. As well, subsection 222(1) states that where a person collects tax, or amounts as or on account of tax, under Division II, the person shall, for all purposes, other than the bankruptcy of the person, be deemed to hold the tax or amounts so collected in trust for Canada. Furthermore, net tax, if a positive amount, (as calculated pursuant subsection 225(1), including all amounts collected and collectible by the person in the reporting period as or on account of tax) must be remitted pursuant to subsection 228(2).
FNLMA supplies of a First Nation which is a non-profit organization for ETA purposes
Many First Nations may meet the definition of a "public service body" under the ETA. Below is a brief discussion of the GST/HST/FNGST consequences on supplies of real property when made by a public service body. Under the ETA, a supply is either taxable or exempt. An "exempt" supply is a supply that is included in Schedule V and is not subject to the GST/HST/FNGST.
Pursuant to subsection 123(1), a public service body includes a non-profit organization. A non-profit organization means "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...."
In determining whether a person is a non-profit organization, GST/HST Policy Statement P-215: Determination of Whether an Entity is a "Non-Profit Organization" for Purpose of the Excise Tax Act (ETA) provides the guidelines that should be consulted. You may access this document from this webpage: http://www.cra-arc.gc.ca/E/pub/gl/p-215/README.html.
We look at an entity's governing documents to determine whether the entity was organized solely for a purpose other than profit. The determination of whether an entity is operated solely for non-profit purposes is a question of fact at any given time. Therefore any determination of whether an entity is a non-profit organization for purposes of the ETA is specific to the time the determination is made.
According to section 25 of Part VI of Schedule V, a supply of real property made by "a public service body (other than a financial institution, municipality or a government)" is exempt unless one of the exceptions listed in that section applies. Please note that a First Nation is not a "government" for GST/HST/FNGST purposes as subsection 123(1) limits the term to mean "Her Majesty in right of Canada or a province."
If the supplier is a non-profit organization at a particular time, supplies of real property by way of lease for a period of more than one month would be exempt under section 25 of Part VI of Schedule V unless one of the exceptions to the exemption applies. Where a lease payment relates to a supply that is exempt under that section, the lessee is not required to pay the GST/HST/FNGST to the person, whether or not the person is registered for the GST/HST.
As stated earlier in this letter in reference to subsection 221(1), where a lessee pays an amount as or on account of the GST/HST/FNGST to the supplier (i.e., the lessor), the supplier is normally required to account for that amount in its net tax calculation for the reporting period during which the amount was collected.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
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 Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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