26 February 1997 GST/HST Interpretation HQR0000503 - Tax Status of Indian Band Management Activity

                                                                        HQR0000503

                                                                        File No.: 11872-1

                                                                        February 26, 1997

Dear XXXXX

The Real Property Division and myself would like to thank you for the opportunity to comment on your draft response of November 28, 1996, to the XXXXX XXXXX an Indian band under the Indian Act. After a review of the issue, we determined that your draft should be modified to reflect the following analysis on issues addressed in this letter.

Interpretation 2

Section 123 of the ETA, provides that the commercial activity of a person means "... (c) the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply". However, pursuant to subsection 240(1) every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered, except where the person is a small supplier or where the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business or where the person is not resident in Canada. Pursuant to subsection 148(1) of the ETA, for purposes of determining whether a person is a small supplier, a person is not required to include, among other things, the supply by way of sale, including deemed self-supplies of capital property of the person, including capital real property. Therefore, a builder will not be required to register because of the self-supplies of real property. In other words, if the XXXXX band has not registered or is not required to be registered for the GST, they will not be required to be registered effective the date of the first rental of a residential complex or residential unit.

Interpretation 3

An Indian band is subject to the self-supply rules contained in section 191, on the same basis as all other persons in Canada. Pursuant to section 191, as a builder, they will be required to self-supply GST on the fair market value of the residential complex. If the self-supply occurs on a reserve, the supply will be tax relieved under the provisions of the GST administrative policy pertaining to Indians, as an Indian band is acquiring an interest in reserve real property. Therefore, although a self-supply occurs, no GST will be remitted.

Interpretations 4 and 1

The XXXXX band is a non-registrant and therefore, as a non-registrant they will not be entitled to an input tax credit; therefore, the housing activities will fall within the definition of a band management activity. As the XXXXX band is a qualifying NPO, they will be eligible to claim a PSB rebate of fifty per cent of the GST payable on each self-supply of a residential complex, pursuant to section 259 of the ETA or the band would also be eligible to be determined as a municipality and therefore eligible for the larger municipal PSB rebate of 57.14 per cent. In addition, as a non-registrant the band would be eligible to claim a rebate under section 257, which can be claimed on the General Rebate Application, Reason Code 7.

If the XXXXX band becomes a registrant, either by voluntarily registering or by being required to be registered, they would be eligible to claim full ITCs for GST paid or payable on costs related to the construction of the residential complexes, pursuant to subsection 169(1) of the ETA; therefore, the activity would not qualify as a band management activity.

The XXXXX band's self-supply of the residential complex will not be tax-relieved under the provisions of the GST administrative policy pertaining to Indians as the residential complex is not located on a reserve. Therefore, the band is required to account for the GST on the self-supply, at the fair market value, of the residential complexes, as follows:

for the single unit residential complexes, at the later of the time the construction or renovation is substantially completed and the time possession is given to another person under the rental agreement, beginning January 1, 1991; and

for the multiple unit residential complexes, the self-supply of the entire complex at the time the first unit is rented out, beginning January 1, 1991.

Should you have any further questions or require clarification on the above or any other Excise/GST matter, please do not hesitate to contact me at (613)954-7954.

Yours truly,

Jamie McInnis, C.G.A.
A/Senior Tax Policy Officer
Indians
Public Service Bodies and Governments
GST Rulings and Interpretations