24 February 2000 GST/HST Interpretation 8268/HQR0001874 - Allowances Paid by Indian Bands

Dear XXXXX

I am replying to your letter of June 25, 1999, which you provided by facsimile on June 29, 1999. In our conversation and your letter, you expressed your concern that Revenue Canada had changed its policy concerning the eligibility for rebate of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain allowances paid by Indian bands. Specifically, you are concerned that we are now applying the provisions of section 174 of the Excise Tax Act to these allowances. As noted in your letter, the policy dealing with the application of tax to Indians and Indian bands is detailed in Technical Information Bulletin B-039R GST Administrative Policy: Application of GST to Indians (TIB039R). I apologize for the delay in responding.

As you may be aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

You are correct that the Excise Tax Act does not deal with the application of GST/HST to Indians and Indian bands. However, section 87 of the Indian Act provides an exemption from taxation for certain types of property, including the personal property of an Indian or a band situated on a reserve. Thus, in relation to the GST/HST, CCRA has adopted a number of guidelines (TIB039R) designed to provide the relief from taxation provided under the Indian Act. The federal government is of the view that this approach is consistent with the exemption provided by section 87 of the Indian Act and with Indian rights as recognized by the law.

As noted in TIB039R, where an Indian band or band-empowered entity acquires transportation, short-term accommodation, meals and entertainment off reserve, these purchases are subject to the GST or HST at the point of sale. However, through an administrative provision, the band/band-empowered entity may be eligible to recover 100 per cent of the GST or HST paid if the supplies of transportation, short-term accommodation, meals and entertainment acquired by the band/band empowered entity are for band management activities or for real property on reserve.

Administratively, we extended the benefit of the rebate of tax to certain allowances paid by the band/band empowered entity where these allowances are for the purpose of off reserve acquisition of supplies of transportation, short-term accommodation, meals and entertainment. In the case of an allowance, the rebate of tax is calculated as 7/107 or 15/115 of the eligible allowance. Note that the 15/115 factor reflects the harmonized tax rate of 15% in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland.

The position of the CCRA is, and has been, that reasonable allowances paid out by the band/band empowered entity to band officials conducting the band's or the entity's band management activities or for real property on reserve are acceptable expenditures for purposes of the rebate on allowances. Generally, these band officials would be employees, officers, chiefs, members of the band council and other band members who are representing the band or band empowered entity in the delivery of band management activities. It does not include contractors who are providing services to the band or band empowered entities.

Allowances that are paid for on reserve travel only are not eligible for the rebate of tax. Allowances that are either for off reserve travel or for both on reserve and off reserve travel will qualify for rebate of tax.

In your letter, you expressed concern about the eligibility for rebate of an allowance paid to a band elder who was part of the decision making process of the band such as negotiations. Under the administrative position described above, an allowance paid to a band elder for the acquisition of off reserve transportation, short term accommodation, meals and entertainment will be eligible for rebate to the extent that these supplies were acquired by the band for band management activities.

Other payments that you are questioning include "travel allowances" for the transportation of band members to their medical appointments off reserve. In some cases, the band pays the band member a fixed amount or an amount based on mileage to transport himself to his own medical appointment. In other cases, the band pays a third party a fixed amount or an amount based on mileage to transport a band member to a medical appointment.

Where the band pays an amount of money to a band member to transport himself to an appointment, that amount does not qualify as an allowance eligible for rebate of tax. Where the band pays an amount of money to a third party to transport a band member to an appointment, we would consider that the third party has provided a transportation service to the band. If the supplier of the transportation service is not registered or required to be registered for GST/HST, the band will acquire the transportation service without being charged GST/HST. However, if the supplier of the transportation service is a registrant and is required to charge tax, the band may be eligible to acquire the transportation service relieved of tax or be eligible for a rebate of tax.

Generally, a program of transporting band members to medical appointments would be considered band management activity. Therefore, as described in TIB039R, if the transportation service was acquired on reserve, the band would be eligible to acquire the transportation service relieved of tax by presenting an appropriate certificate to the supplier. In the event that tax is paid in these circumstances, the band is eligible for rebate of that tax amount as tax 'paid in error' (code 1) on the General Rebate application. If the transportation service was acquired off reserve, the band is required to pay the tax but is eligible for a rebate of that tax amount (code 8) by filing a General Rebate application.

In summary, either the band has not been charged tax or tax relief was provided at the time the transportation service was acquired or a rebate of the tax paid was available. The net cost to the band for the transportation service does not include the tax.

In your letter, you maintain that section 174 of the Excise Tax Act should not apply in the circumstances where tax relief flows from the Indian Act. We agree. A comparison between the provisions of section 174 and the application of the policy dealing with allowances paid by Indian bands and band empowered entities clearly reveals that section 174 has not been applied. That is, while section 174 is limited to employees and partners, the policy extends the benefit of tax relief to 'band officials', which is defined as employees, officers, chiefs, members of the band council and other band members who are representing the band or band empowered entity in the delivery of band management activities. A condition for an eligible allowance under section 174 is that the allowance must be reasonable and that all or substantially all of the supplies must be for supplies that are taxable. Under the policy provisions, the allowance must be reasonable in relation to the off reserve acquisition of transportation, short term accommodation, meals and entertainment. However, in those circumstances where the allowance is for travel expenses both on and off reserve, we have allowed a rebate of tax without regard to the proportion of on and off reserve travel in Canada. Another condition of section 174 deals with the eligibility for deduction of the allowance according to the Income Tax Act. The policy provisions that apply to tax relief for acquisitions by Indian bands and band empowered entities are not subject to such a condition.

In conclusion, as explained above, the policy concerning the eligibility for rebate of GST/HST to certain allowances paid by Indian bands and band empowered entities continues to apply. Section 174 does not apply to these allowances. You contend that because we previously paid certain rebates of tax, all claimants should receive the same benefit. Notwithstanding that rebates of tax may have been paid in circumstances where the amounts did not qualify for rebate, these overpayments cannot result in a tax policy position that will extend an inapplicable benefit to all rebate claimants.

Should you require clarification on the above matter, please contact Suzanne Leclaire, Senior Technical Analyst, at (613) 954-7954.

Yours truly,

P. Bertrand
Director
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate