21 August 2002 GST/HST Interpretation 39590 - Qualification of a Band-empowered Entity

This is in response to your query to the XXXXX GST/HST Rulings Centre concerning the qualification of the XXXXX as a band-empowered entity (BEE).

Our understanding of the case is as follows.

XXXXX is incorporated under the XXXXX, as a "membership" corporation.

Each of the following are full voting members of XXXXX, being signatories to the XXXXX described in the paragraph immediately below: XXXXX First Nation; XXXXX; XXXXX; XXXXX; and XXXXX. Other than the two First Nations represented here, the members are XXXXX communities established pursuant to an order of the Minister under XXXXX Following a decade of planning and negotiations, the XXXXX was concluded in XXXXX. The agreement confirmed the parties' mutual commitment to the creation of a regional health services delivery organization that:

•   delivers comprehensive heath services in the XXXXX Health XXXXX Region, including acute care, long-term care, home care, community-based health services, ambulance services, public health services, mental health services, alcohol and drug abuse services, and other related health services;

•   is governed through a structure accountable to the residents of the XXXXX Region;

•   does not derogate from or add to the existing rights and obligations of any of the parties respecting the provision of health care services;

•   is without prejudice to the existing Treaty and aboriginal rights, principles, and goals of the participating First Nations; and

•   has XXXXX and Canada contribute for the construction of a facility to provide acute services on reserve.

As a result, XXXXX carries on any and all activities necessary or incidental to its purposes of governing and managing the delivery of comprehensive health services to all residents, status Indians and non-Indians, of the XXXXX Health XXXXX Region, and of the construction and operation of the XXXXX Health Facility on XXXXX Indian Reserve XXXXX.

The number of members is unlimited. Membership interests in XXXXX may from time to time be issued by resolution of the Board of Directors in such number and on such terms and conditions as may be permitted under the Articles of Incorporation.

The Board of Directors consists of a minimum of XXXXX and a maximum of XXXXX persons, as determined from time to time by the members.

Each member is entitled to appoint at least one director. Each member will appoint a second director where the XXXXX Community or First Nation has a population in excess of XXXXX % of the total population of the XXXXX Health XXXXX Region. Each member will appoint a third director where the XXXXX Community or First Nation has a population in excess of XXXXX % of the total population of the health region.

In order to determine the appropriate number of directors, the membership formula is reviewed XXXXX months prior to any selection of directors. The members may require verification of the population statistics from an independent source. If, as a result of the addition of members, the number of directors increases above the number of XXXXX, the members will review this formula and revise it in order to limit the number of directors to XXXXX.

All directors must meet the qualifications set out in XXXXX Members' Agreement. There is no requirement for a director to be a member of the Member First Nations, although we can assume that each of the XXXXX First Nation Members will appoint as a director a member of the respective First Nation. The qualifications are general in nature, such as the following:

•   have been resident of the XXXXX Health XXXXX Region for a minimum of XXXXX;

•   have a minimum age of XXXXX years;

•   be fluent in English or XXXXX; and

•   not be the legal counsel of XXXXX.

Under XXXXX XXXXX and XXXXX XXXXX of the XXXXX Members Agreement, the members approve the annual operating budget unanimously.

Under XXXXX Members' Agreement, XXXXX in the event of dissolution or winding up must dispose of assets as follows.

•   The facility and the lease for the facility's land shall be transferred to whatever health delivery organization offers memberships to the XXXXX First Nation.

•   Where all members join the same health delivery organization, personal property will be transferred to that organization.

•   Otherwise, each member's interest in the assets shall be determined, and disposition will require the approval of the funding agencies.

The XXXXX registered office is located on XXXXX Indian Reserve XXXXX XXXXX.

The health care facility is located on the same reserve.

Interpretation Requested

You would like to know if XXXXX is a BEE for purposes of Technical Interpretation Bulletin (TIB) B-039R, entitled GST Administrative Policy - Application of GST to Indians.

Interpretation Given

XXXXX is not a BEE

Analysis

As you know, the policy for the application of the GST/HST to BEEs stems from relief provided under the Indian Act. The definition for a BEE is provided in TIB B-039R on page 2. As the First Nations referred to in the statements above are bands for purposes of the Indian Act, and as TIB B-039R for purposes of BEEs refers to bands, tribal councils, and group of bands other than a tribal council, we will refer in our analysis to the member First Nations as bands. Under our interpretation of TIB B-039R, in order to be considered a BEE the entity must be owned or controlled by a band, tribal council, or group of bands.

An entity is considered to be owned where a band holds title to the assets, or controls the disposition such that, in the event of dissolution or winding up, the assets are vested in the band. For XXXXX, under XXXXX Members' Agreement, in the event of dissolution or winding up XXXXX must dispose of assets as follows.

•   The facility on reserve and the lease for the facility's land shall be transferred to whatever health delivery organization offers memberships to the XXXXX Band.

•   Where all members join the same health delivery organization, personal property will be transferred to that organization.

•   Otherwise, each member's interest in the assets shall be determined, and disposition will require the approval of the funding agencies.

By virtue of the conditions for disposition, the criterion for ownership described above is not met because there is no evidence that all the assets will be vested in the bands.

TIB B-039R states that the criterion for ownership may also be satisfied where the band owns 90% or more of the shares or holds 90% or more of the memberships of the entity.

With XXXXX, we are dealing with voting memberships rather than with shares. Under the terms of the Articles of Incorporation, it is not evident that the membership can be substantially composed of the bands. Only XXXXX of the XXXXX members are bands. The XXXXX others are XXXXX communities. Still, the number of members is unlimited under the Articles of Incorporation, and membership interests may from time to time be issued by resolution of the Board of Directors.

The XXXXX could qualify as a BEE if the entity is controlled by a group of bands. Control is exerted where the bands appoint or elect a majority of the directors, and where the entity is required by legislation, bylaws, or an operating agreement to submit to the bands its operating budget and, where applicable, its capital budget for review and approval.

Under the terms of XXXXX bylaw XXXXX, there is no assurance that the bands will elect a majority of the directors. The Board of Directors consists of a minimum of XXXXX and a maximum of XXXXX persons. Each member is entitled to appoint at least one director. Each member will appoint a second director where the member (XXXXX community or band) has a population in excess of XXXXX % of the total population of the health region. Where a member has a population in excess of XXXXX % of the health region's population, the member will appoint a third director.

Even in the unlikely circumstance where a majority of the standing directors have been elected by the bands (by virtue of population shifts), the bylaws do not assure that the operating and capital budgets are submitted to the bands for review and approval. Under XXXXX XXXXX and XXXXX of the XXXXX Members Agreement, the members approve the annual operating budget unanimously. As we have seen, it is not evident that substantially all of the members are bands, a tribal council, or a group of bands other than a tribal council.

A third and final criterion for a BEE is that it must maintain a presence on reserve. The XXXXX 's registered office is located on XXXXX Indian Reserve XXXXX.

However, although XXXXX has a vital interest in providing health care to XXXXX Indian bands, it also acts considerably for non-Indian interests. As a result it does not satisfy all of the requirements of TIB-B039R for acceptance as a BEE.

Dwight Kostjuk
Indian Affairs Unit
PSBs & Govts Division
Excise and GST/HST Rulings Directorate