21 August 2002 GST/HST Interpretation 39650 - Clarifications for Policy Concerning Travel Allowances for Indian Bands

You have asked the XXXXX GST/HST Rulings Centre for our view concerning the General Application for Rebate for Indian bands and band-empowered entities (commonly called the code 8 rebate) for allowances and reimbursements paid out to band officials.

In responding to your specific query, and to a number of queries from other auditors, we reviewed the Indian band travel allowance guidelines set out in my letter of XXXXX. We recognized that it would be constructive to make a number of clarifications. For this reason, the guidelines described below supersede the information given in that letter. Your specific query is addressed in a passage near the close of this letter.

As you know, the provisions described in Technical Interpretation Bulletin B-039R (TIB B-039R), entitled GST Administrative Policy - Application of GST to Indians stem from policy guidelines announced by the Minister of Finance in December 1990 and section 87 of the Indian Act. The provisions regarding the availability of a rebate are described on page 6 of TIB B-039R.

The benefit of a rebate of tax in the situations described above is available only in the following circumstances. Where a band or band-empowered entity:

•   as the recipient makes purchases of off-reserve transportation, short-term accommodation, meals and entertainment in the course of conducting band management activities; or

•   pays an allowance to a band official for the purchase of off-reserve transportation, short-term accommodation, meals and entertainment in the course of conducting band management activities; or

•   reimburses a band official for the purchase of off-reserve transportation, short-term accommodation, meals and entertainment in the course of conducting band management activities.

On the whole, the guidelines developed with respect to allowances and reimbursements paid by bands and band-empowered entities are not based on the Excise Tax Act (ETA) (e.g., sections 174 and 175). For example, code 8 rebates in respect of an allowance are not subject to the requirement of section 174 that eligibility for deduction is in accordance with the Income Tax Act.

While the following guidelines may parallel sections 174 and 175 of the ETA in some way, they were devised to capture the unique nature of the travel requirements of Indian bands and band-empowered entities.

As a result, in conducting an audit of code 8 rebates submitted by bands or band-empowered entities, one should not be constrained by any requirements, directives, or policies concerning sections 174 and 175 of the ETA. Because of the distinctiveness of these rebate claims, it may be appropriate for verification purposes to confirm with the claimant that the conditions described below are satisfied.

Allowances provided to band officials by a band or band-empowered entity for band management activities

1. Only allowances that are for supplies acquired or provided off-reserve of transportation, short-term accommodation, meals and entertainment are eligible for the code 8 rebate. Where the allowance is for travel outside Canada, no compensation is available where no tax was paid. Where the meals and entertainment are purchased on reserve, no code 8 rebate is available.

2. Only reasonable allowances are eligible, as is the case for section 174 allowances. However, the code 8 rebate is not subject to the condition of section 174 that requires the eligibility for deduction of the allowance according to the Income Tax Act.

3. The allowances must be paid out by the band/ band-empowered entity to band officials for the purposes of conducting band management activities. A band official is a person authorized to represent the Indian band or band-empowered entity in an official capacity. Generally, these band officials are employees, officers, chiefs, members of the band council and authorized band members (which may include elders of the band). The term band official does not include contractors, consultants, or other self-employed persons who are providing services to the band or band-empowered entity.

4. Contractors hired by a band or band-empowered entity usually provide a single service. Although the negotiated amount to be paid may include an advance (sometimes referred to as an allowance), these amounts are still normally part of the consideration for the supply. Consequently, unless the off-reserve supply is a supply of transportation, meals or short-term accommodation, the code 8 rebate mechanism does not apply. However, the supply may be relieved of tax as a service acquired for band management activities. For example, a contractor may be hired by a band or band-empowered entity to make major repairs to its disabled cable logging machine, currently situated on land purchased (under a settlement claim) that is not intended to be part of a reserve. The consideration is $60 per hour to provide the repair service plus a $150 allowance for transportation, meals and accommodation. If it takes 10 hours to repair the machine, the total consideration is $750 (6 x $10 + $150 allowance). No code 8 rebate is available to the band or band-empowered entity. However, assuming the repair service was for band management activities (the logs will be used to build a new longhouse and a school on-reserve), the contractor does not charge tax. If tax was charged and paid in error by the band or band-empowered entity, a rebate under section 261 of the ETA is available (code 1 rebate).

5. The band official must represent the band or band-empowered entity for purposes of band management activities or for real property on reserve. CCRA interprets the phrase "for band management activities or for real property on reserve" as a conjunctive phrase. Consequently, services acquired by Indian bands or band-empowered entities that are for real property situated off-reserve do not qualify for rebate (even if they are acquired for purposes of "band management"). The term band management activity refers to an activity conducted by bands and band-empowered entities with regard to their normal administration, programs, and services, for which input tax credits cannot be claimed.

6. An amount paid for an official's use of a transportation-service provider for a trip wholly on-reserve (e.g., a cab ride provided wholly on one reserve, or one provided from one reserve to another) is not eligible for the code 8 rebate of tax. If GST/HST was paid on the acquisition of a transportation service acquired on reserve, a code 1 rebate may be available to the band official acting as an individual Indian claiming an amount paid as tax in error, provided the requirements of TIB B-039R are met.

7. Where the allowance is paid for the use of an official's vehicle both on and off reserve in Canada, a rebate is allowed without regard to the proportion of an on-reserve transportation and off-reserve transportation service purchased in Canada. For example, where an official drives from a reserve to a First Nations regional summit in Winnipeg, and is given $60 a day as an allowance, the $60 is eligible for the allowance rebate calculation.

8. The rebate of tax is calculated at 7/107 or 15/115 of the eligible allowance, as follows. Where at least 90% of the supplies for which the allowance is paid were made in participating provinces, the amount of tax deemed to have been paid is equal to the amount of the allowance multiplied by the fraction 15/115. In any other case, the amount of tax deemed to have been paid is equal to the amount of the allowance multiplied by the fraction 7/107.

Reimbursements provided to band officials by a band or band-empowered entity for band management activities

CCRA takes the following position for reimbursements and the code 8 rebate.

1. Only reimbursements for tax paid on supplies acquired or provided off-reserve for transportation, short-term accommodation, and meals and entertainment will qualify for the code 8 rebate. Where the reimbursement is made for travel outside Canada, no compensation is available where no tax was paid.

2. The reimbursements must be paid out by the band/ band empowered entity to band officials. A band official is a person authorized to represent the Indian band or band-empowered entity in an official capacity. Generally, these band officials are employees, officers, chiefs, members of the band council and authorized band members (which may include elders of the band). The term band official does not include contractors, consultants or self-employed persons who are providing services to the band or band-empowered entities.

3. Contractors hired by a band or band-empowered entity usually provide a single service. Although the negotiated amount to be paid may include reimbursement for expenses, these amounts are still normally part of the consideration for the supply. Consequently, unless the off-reserve supply is a supply of transportation, meals or short-term accommodation, the code 8 rebate mechanism does not apply. However, the supply may be relieved of tax as a service acquired for band management activities. For example, a contractor may be hired by a band or band-empowered entity to make major repairs to its disabled cable logging machine, currently situated on land purchased (under a settlement claim) that is not intended to be a reserve. The consideration is $60 per hour to provide the repair service plus expenses for transportation, meals and accommodation. If it takes 10 hours to repair the machine and the expenses were $289, the total consideration is $889 (10 x $60 + $289). No code 8 rebate is available to the band or band-empowered entity. However, assuming the repair service was for band management activities (the logs will be used to build a new longhouse and a school on-reserve), the contractor does not charge tax. If tax was charged and paid in error by the band or band-empowered entity, a rebate under section 261 of the ETA is available (code 1 rebate).

4. The band official must represent the band or band-empowered entity for purposes of band management activities or for real property on reserve. CCRA interprets the phrase "for band management activities or for real property on reserve" as a conjunctive phrase. Consequently, services acquired by Indian bands or band-empowered entities that are for real property situated off-reserve do not qualify for tax relief (even if they are for purposes of "band management"). The term band management activity refers to an activity conducted by bands and band-empowered entities with regard to their normal administration, programs, and services, for which input tax credits cannot be claimed.

5. Reimbursements that are paid by a band or band-empowered entity for transportation services (e.g., for the purchase of a bus ticket) provided wholly on-reserve (e.g., from one reserve to another) are not eligible for the code 8 rebate of tax. Where the band official paid tax for transportation on reserve the official acting as an individual Indian claiming an amount paid as tax in error, may be eligible for the code 1 rebate, where the requirements of TIB B-039R are met. Where the official is eligible for the code 1 rebate, no code 8 rebate is available to the band with respect to that specific expense.

6. Reimbursements that are paid for transportation services (e.g., for the purchase of a bus ticket) provided wholly off-reserve in Canada (or, where an air transportation service is purchased, in the taxation area), or for both on-reserve and off-reserve transportation services, will qualify for the rebate. For example, where the reimbursement is paid to a band official for a flight from an airport on-reserve to Vancouver International to connect to a flight for Washington, D.C., to attend an Americas First Nations summit, the code 8 rebate is available.

7. The reimbursed amount must be fully accounted for to the band or band-empowered entity by the recipient (e.g., evidenced by supporting vouchers or records). The amount of rebate is based on the actual tax paid (i.e., 7% GST or 15% HST) or on a factor of deemed tax paid (i.e., 6/106 GST or 14/114 HST). (The method chosen must be used consistently.) The factor 14/114 can only apply if at least 90% of the supplies for which the reimbursement is paid were subject to the 15% HST.

8. This 6/106 GST factor and the 14/114 HST factor provides a parallel to subsection 169(5) of the ETA. (Subsection 169(5) of the ETA provides the authority to exempt specified registrants, specified classes of registrants, or all registrants from any of the requirements provided for under subsection 169(4) of the ETA, as well as to establish the authority to establish terms and conditions where the Minister is satisfied that there is (or will be) sufficient evidence to support the ITC claim.) The factors are intended to apply where, for example, restaurant receipts include provincial tax(es), gratuities, etc. The factors apply to the full invoice.

Special Case:

Transportation of band members to medical appointments held off-reserve

Reimbursements and allowances paid to band members for the purchase of transportation to attend personal medical and dental appointments held off-reserve do not normally qualify for the code 8 rebate. Usually, the Indian patients for their personal use acquire these supplies of transportation and it is not the band that is the recipient of the supply. In addition, the Indian patient is not considered an official of the band when attending a personal medical or dental appointment.

Where a band regularly carries out an activity or program of transporting its band members to medical appointments off-reserve, and it contracts with a third party for the provision of the transportation service, this activity or program may qualify as a band management activity, and therefore may qualify for the rebate in that manner.

However, the band will not be considered to be carrying out the activity or program if, in fact, it is operating under the Health Canada Non-Insured Health Benefits Program (NIHBP) in which the band is reimbursed for such expenses (including tax). The program reimburses transportation expenses to access necessary health services, using the most efficient and economical method of transportation, consistent with the client's health condition (e.g., emergency transportation for non-elective medical care; transportation for an approved escort required for medical or legal reasons, or interpretation; meals and accommodation while in transit for health care services). In order to direct a NIHBP program so as to derive the benefits for its members, a band or tribal council must apply to Health Canada.

A description of the NIHBP program can be viewed at www.hc-sc.gc.ca/fnihb/nihb/publications/pilot_projects_handbook/part_a_overview.htm#Section_2 of Health Canada's website.

As the NIHBP program is that of Health Canada, it is not recognized by the CCRA as a program or activity of the band. Therefore, the reimbursement paid by the band to its members to cover their medical travel expenses is not made in the course of a band management activity. As the band did not acquire the supply of medical transportation services in the course of band management activities nor was the reimbursement of expenses paid to a band official conducting a band management activity, the band is not entitled to recover the GST/HST imbedded in the reimbursement it pays to its band members for off reserve medical transportation expenses.

Where a band is reimbursed for the GST/HST by Health Canada, no rebate is available.

Where a band can reasonably be regarded to be entitled for a rebate of GST/HST under any Act of Parliament, section 263 of the ETA denies the section 261 (ETA) rebate, on which the code 8 rebate is based.

Comments requested concerning the term, "band official"

For your specific situation, you have provided us with a number of copies of documents referring both to a tribal council and a corporation. You request guidance on whether a band member can be considered an official of a tribal council or a band-empowered entity.

A tribal council has claimed a travel allowance for a person who is not a member of the council. The person is a member of a band that is a member of the council. As we understand the situation, the council, under an agreement with the Department of Indian Affairs and Northern Development, was obliged to have the person attend a meeting. For the person's travel, the council paid the allowance. The person's band did not pay the allowance. You would like to know if such a person will be considered an official of the council.

It is possible that a band member can at the same time be an official of a tribal council. It is a question of fact that has to be determined. A code 8 rebate would be available to the tribal council as long as the band member is an official (as described above in Reimbursements # 2 above) for the tribal council, and the allowance is the only amount paid to the person other than wages (i.e., it is not part of the consideration paid for a service contract).

It is the intention that only the entity that pays for the allowance (in your scenario, the tribal council, not the band) is eligible to recover GST/HST for an official's travel.

If you require clarification of any of the information provided above, please call Dave Caron, Manager of the Aboriginal Affairs Unit, at (613) 954-7957, or myself at (613) 957-1175.

Dwight Kostjuk
Rulings Officer
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise & GST/HST Rulings Directorate